Investing in EV Stocks Is a Long-Term Play

• Electric vehicles have garnered intense interest due to environmental, political and kinetic catalysts.
• However, participants seeking a road to quick riches must recognize that extreme patience may be required.
• Because EVs attract substantial hype, it’s critical to conduct your own due diligence.

Well before the Russian government’s unsettling decision to invade neighboring Ukraine, investments geared toward electric vehicles garnered tremendous intrigue and cash inflows. From seemingly every angle -- rising environmental concerns, political pressure to adopt next-generation solutions and most importantly, strong consumer demand -- the EV narrative pointed toward an almost perma-bull relentlessness.

Already primed for EV consumption and integration, the industry received another catalyst, albeit one of a shockingly cynical nature. With Russian forces violating Ukrainian sovereignty, European leaders suddenly realized the jig was up. Immediately, policymakers pivoted toward clean and renewable energy sources through fast-tracking necessary infrastructural initiatives, per the Yale School of the Environment.

Logically, EVs represent a crucial cog in the green machinery. By mitigating or even outright eliminating a sizable source of hydrocarbon consumption, Europe could simultaneously reduce its dependency on Russian energy and gain diplomatic strength through an unencumbered economic profile.

For investors, they have myriad options to participate in this grand transition. Whether buying shares of EV manufacturers like Tesla (TSLA) or going with an infrastructure play like ChargePoint (CHPT) or even innovative battery developers like QuantumScape (QS), the road is wide open.

At the same time, it may also end up being a lengthy one. Indeed, lessons from the integration of the combustion automobile suggests that prospective sector buyers should gird themselves for an extensive commitment.

The Ghosts of 1911 Have a Story to Tell

On the surface, EV industry proponents argue that the challenges of the present juncture necessarily support continued integration of clean transportation initiatives. The crisis in Ukraine only emboldens this framework since the hegemony of hydrocarbons allow bad actors to impose asymmetrical influence on world affairs.

That integration is occurring -- along with its moral imperative -- is largely not under question. However, arguably few analysts discuss the time necessary for this integration to reach mass scale. To better understand the challenges the EV segment faces, it helps to look at automotive history.

According to data from the Office of Energy Efficiency & Renewable Energy, in 1900, there were 0.11 (combustion) cars for every 1,000 people. By 1910, this metric soared to 5.07 and a year later, increased again to 6.81.

On paper, the percentage gains are impressive. But in 1950 -- as America settled into its post-World War II paradigm -- there were nearly 324 cars per 1,000 people. Put another way, if you had invested in the combustion auto sector in 1911 with the same fervor as people are banking on EVs, you would have had to wait decades for your holdings to truly blossom.

To be fair, the two World Wars affected consumer demand. Nevertheless, Americans of modernity are also experiencing kinetic headwinds such as the COVID-19 pandemic and the ongoing war in Ukraine. This factor doesn’t take away from the reality that mainstream integration of a new technology takes time.

History Repeats Itself

Some might say that because of our current advanced economy and the rapid proliferation of industrial technologies, the pivot from combustion cars to EVs should be much quicker than the transition from anatomical/biological mobility to combustion cars. But the data doesn’t quite support that narrative, surprisingly enough.

For instance, in 1904, there were 0.67 cars per 1,000 people. According to data from the U.S. Department of Energy, in 2015, there were 1.25 EVs per 1,000 people. Five years later on both timelines, the former metric hit 3.45 whereas the latter metric hit 5.26. If you compare the magnitude difference, auto integration improved by a factor of 5.15 and EV integration improved by a factor of 4.21.

In other words, not much difference exists in the rate of integration. If we assume that this trend will carry out along historical norms, then it might take 40 years or so from this point forward to see conspicuous integration of EVs. Not to sound macabre but by then, some of us might no longer be alive!

Admittedly, the notion that we are still so entrenched in the early innings sounds ridiculous considering our advanced technologies. However, EV integration isn’t just about technology but also consumer economics. If going electric is cost prohibitive, then yes, the adoption rate could be snail-pace slow.

Also, keep in mind that in 2012, there were 808 cars per 1,000 people. Given that we’re probably between 6 to 9 EVs per 1,000 (equivalent to 1911 levels of combustion car integration), we have a long and challenging road ahead before we can even think about replacing our hydrocarbon-powered vehicles with cleaner alternatives.

Time to Hit the Books

One of the consequences of the COVID-19 paradigm shift is the replacement of sound research for investment ideas with memes and social-media-driven hype. Outside of cryptocurrencies, the EV sector has been a massive recipient of bullish hysteria.

Unfortunately, this dynamic tends to hurt retail investors, luring them into investments without diving deeper into broader risk-reward implications. For the EV sector, the hype centers on the technical viability of the core product, along with brewing interest for the zero-emissions pivot.

However, economics will always be a factor. During the first half of the 20th century, it took decades before mass production and economies of scale enabled average households to buy personal vehicles. The same may be said about EVs, which means prospective investors must think carefully before parting with their hard-earned dollars.