Throughout market history, stocks, sectors, and thematic investments have experienced a swinging pendulum of sentiment, oscillating between overly pessimistic and overly optimistic extremes. As we’ve noted many times, successful investing requires second-level thinking—moving beyond the headlines and digging deeper to understand whether forecasts are exceedingly bearish or bullish.

One area recently bucking some overly negative sentiment is the electric vehicle (EV) sector. Investors should note several important statistics. The EV market continues to grow, even if growth rates fluctuate. For instance, EV sales in the U.S. jumped 60% last year, from 1 million in 2022 to 1.6 million in 2023. To put this in perspective, in 2016, only 200,000 EVs were sold in the U.S., which is eight times fewer than today’s annual sales.

It is true the internal combustion engine (ICE) vehicles still dominate, commanding around 75% of total U.S. vehicle sales. However, EV sales have continued to climb in 2024. The same is true across Australian and Europe – while the growth rate of EVs may not be as steep as it was in 2022 and 2023, overall the EV market continues to increase.

So why are the share prices of EV makers like Tesla (NASDAQ: TSLA) down so much (at the time of writing) this year? 

The issue isn’t growth—it’s expectations.

Tesla: Addressing Challenges and Showing Resilience

Shares of Tesla have been on a comeback trail recently. Tesla has faced numerous challenges this year, including slowing sales growth across the EV sector, distractions for CEO Elon Musk, and increased competition. These factors combined to push a negative narrative and sentiment towards the company. 

However, the company has shown resilience in the first six months of 2024. In June, Tesla shareholders approved a controversial pay package for Musk, lifting a significant weight off the sentiment and sparking renewed investor confidence.

Now, after reporting stronger-than-anticipated vehicle deliveries, the Tesla share price has surged again helping the company increase its market cap by over 40% in the past four weeks.

In the second quarter of CY24, Tesla delivered nearly 444,000 EVs, surpassing the consensus estimate of 439,000 units. Despite a 4.8% decline from the year-ago period, the figure rose 14.8% from the first quarter.

In more good news, Tesla marked a record 9.4 GWh (gigawatt hours) of energy storage products deployed in the second quarter. This more than doubled the previous record of 4.1 GWh reported in Q1 2024.

There’s been a surge in interest in energy storage products to smooth out power supply as renewable energy sources are installed for applications including growing data centre construction.

The rise in energy storage deployments favourably positions Tesla with yet another source of revenue for the company. Tesla prides itself on technology – software, energy storage, robotics, and the potential for self-driving vehicles. 

Tesla will continue to push the case that it is more than “just an EV car maker” when it provides an update on its self-driving technology on August 8.

Rivian: Securing a Lifeline Through Volkswagen Investment

EV start-up Rivian (NASDAQ: RIVN), despite developing a unique brand and increasing sales over the last two years, continues to face significant cash flow challenges. However, a lifeline emerged last week when global automaker Volkswagen (ETR: VOW3) agreed to invest up to US$5 billion in Rivian over the next two years.

This investment led to a surge in Rivian’s share price, although the stock remains down nearly 43% in 2024. Volkswagen’s investment will initially be US$1 billion in the form of a convertible note, converting to Rivian shares once regulatory approvals are received. Additionally, Volkswagen plans to invest another US$4 billion through a joint venture focused on developing next-generation EV architecture.

For Rivian, this substantial cash infusion will allow continued business scaling. Combined with its existing US$7.9 billion cash balance, this investment provides ample resources to ramp up production of lower-priced R2 SUV models and build out a US$5 billion manufacturing campus in Georgia, USA.

The partnership will also enable Volkswagen to access Rivian’s valuable zonal hardware design, critical for its next-generation EVs. Rivian’s ability to reduce vehicle costs and improve manufacturing processes will be bolstered by Volkswagen’s expertise, positioning Rivian to potentially achieve a positive gross margin by the Q4 2024 and setting long-term targets for profitability.

The TAMIM Takeaway

It is common to see leading players in particular sectors bounce back once it becomes clear that broader initial fears were overdone. Savvy investors should take note when historical multiples reach relevant lows and when narratives, rather than facts, drive share prices down. While second-level thinking does not guarantee success in investing, truth-seeking remains a crucial skill. The rebound of Tesla and Rivian highlights the importance of looking beyond immediate challenges to recognise long-term potential and strategic opportunities.

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Disclaimer: Tesla (NASDAQ: TSLA) and Rivian (NASDAQ: RIVN) are currently held in TAMIM Portfolios.