Tired electric car investors must prepare for another difficult day. The auto industry has not shaken its confidence at all, and Bitcoin’s plunge has nothing to do with today’s actions. Concerns about inflation from overseas have become the main concern. Tesla (stock code: TSLA) fell about 4% on Wednesday. The S&P 500 and Dow Jones Industrial Average both fell more than 1%.
The sell-off at the beginning of Wednesday appeared to be caused by European inflation data. Consumer prices in the UK rose by about 1.3% year-on-year, while prices in Europe rose by about 1.6% year-on-year. European consumer prices also rose 2.9% in April from March. The absolute level of inflation does not seem so shocking, but economists expect to see even lower levels. Such inflation is not what investors want to see.
High inflation often hurts stock valuations and leads to high interest rates and bond yields. This means that stocks with high price-to-earnings ratios and low dividend yields are relatively less attractive to bonds. Faster-than-expected inflation has attracted the attention of central banks around the world. They hope to maintain the spirituality of inflation and raise short-term interest rates. Rising interest rates make business operations more expensive and often cool the economy. This is not conducive to corporate earnings growth.
The rapid rise in prices hurt everyone. The relative wealth of savers has decreased because everything is spent more money, and profit margins and capital expenditure plans have been squeezed. None of these explanations for Wednesday’s decline has anything to do with the penetration rate of electric vehicles or battery technology. EV stocks are often highly valued simply because of their rapid growth. Shares of Chinese electric car maker Weilai Automobile (NIO) also fell about 4% on Wednesday. Electric car investors got some good news about the industry from President Joe Biden on Tuesday.
Biden said in a statement: “Now is the prime time for long-term, transformative investments.” He pointed out that China has 800,000 electric vehicle charging stations, while the United States has only 100,000. Biden reiterated his plan to invest in electric vehicle infrastructure in the US employment plan. In addition to adding charging stations, he also outlined his electric vehicle purchase incentive plan, a tax credit plan for investing in electric vehicle related manufacturing, and more funds for electric vehicle research and development.
As of the end of the quarter, Tesla held approximately $2.5 billion worth of Bitcoin. Since then, the price of Bitcoin has fallen by nearly 40%, shrinking the value of Tesla’s holdings by approximately $1 billion. This is very important, but Tesla’s loss today is about 300 million U.S. dollars, and its market value has dropped by about 2 billion U.S. dollars. Most of the decline can be traced to inflation and the rotation of high-growth stocks. Since Tesla hit a 52-week high, the Nasdaq Composite Index has fallen by about 2%. The Nasdaq Composite Index is home to many high-value, high-growth stocks.
The Dow Jones Index, which has many established economic companies, has risen by more than 10% in the same period. Inflation concerns will have to be subdued, which is a prerequisite for the electric vehicle industry to resume its rise. Moreover, after inflation concerns disappear, investors can reassess the long-term earnings trajectory of electric vehicle companies.