For the past year or so, the world has been gripped by a shortage of semiconductor chips. Extremely crucial components in a wide variety of industries, these chips are needed for everything from smartphones and laptops to washing machines and cars. As such, several industries have been disrupted by the chip shortage, resulting in halted production and reduced sales as manufacturers wait for the global supply of chips to bounce back. The electric vehicle (“EV”) industry, which was just starting to pick up steam when the coronavirus pandemic exacerbated the shortage, has not been spared.
But curiously, despite reduced vehicle sales, EV stocks have been on the rise. Most industries would see their stock prices drop if sales were disrupted for entire months, but the nascent electric vehicle sector has reacted differently, with stock prices skyrocketing amid reduced sales. Why are EV stock prices on the rise even though major automakers have been forced to limit or halt production and significantly reduce sales?
The short answer would be faith in an electric future. As it stands, electric vehicles are poised to replace internal combustion engine (“ICE”) vehicles as countries strive to reduce their reliance on fossil fuels and cut down on greenhouse gas emissions. So while things aren’t going great in the present for electric car makers, investors are looking toward — and betting on — a future where EVs are the main form of vehicular transportation.
Cars are still enjoying strong demand, carmakers say, despite record high prices. According to Elaine Buckberg, chief economist at General Motors, this is due to increased job openings, growing pent-up demand for vehicles and extra savings accumulated during the pandemic. But even if households have excess savings, automakers have been forced to shut down plants and hold back already manufactured vehicles because they do not have chips.
However, this hasn’t been a discouraging factor for investors who have bought EV stocks in droves. In September, General Motors shares rose by 8% while Ford saw a 9% bump in share prices. Furthermore, automakers are investing billions of dollars into building factories and electrifying their lineups. Ford recently announced that it would invest $11.4 billion to build two gargantuan manufacturing campuses in Tennessee and Kentucky, GM has pledged to pour a whopping $35 billion into electrification through 2025, and several EV startups including Rivian and Lucid are preparing to begin EV deliveries.
These surging stock prices are likely to raise the market valuations of companies such as Ideanomics Inc. (NASDAQ: IDEX), which have holdings in various entities in the industry.
NOTE TO INVESTORS: The latest news and updates relating to Ideanomics Inc. (NASDAQ: IDEX) are available in the company’s newsroom at https://ibn.fm/IDEX
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