EV market capitalisations go bonkers

This is an audio transcript of the FT News Briefing podcast episode: EV market capitalisations go bonkers

Marc Filippino
Good morning from the Financial Times. Today is Thursday, November 18th, and this is your FT News Briefing.

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As gas prices continue their ascent, Joe Biden fingers American oil companies. And Europe’s common currency falls to a low point against the dollar. Plus, some electric vehicle companies haven’t sold a single car, but they have bigger market caps than the world’s leading automakers. What gives?

Peter Campbell
The very short answer is that it’s completely crazy.

Marc Filippino
There you have it. The FT’s Peter Campbell will talk more about what investors might be thinking. I’m Marc Filippino, and here’s the news you need to start your day.

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Now, if you’ve filled up your gas tank lately, you know that prices at the pump are surging. We’ve reported on supply and demand causes. Now President Joe Biden wants US regulators to investigate leading oil companies to see if they’re engaging in potentially illegal conduct that’s leading to higher fuel prices. Here’s the FT’s Lauren Fedor in Washington.

Lauren Fedor
So in this letter that the president sent to the FTC chair, he identified a couple of things. The main issue that he’s flagging here is that he believes that profits for these companies are going up. Their costs are going down. And yet prices for consumers are rising pretty fast. And as a result, the White House is basically saying something doesn’t add up here.

Marc Filippino
Lauren, Biden’s called on Opec, the oil producing group, to produce more oil to ease price pressures. And the oil alliance is basically, you know, ignored him. So is what Biden’s doing now a populist move to show American voters he’s trying something else to deal with the rising fuel prices?

Lauren Fedor
Sure. You know, the White House would push back on that on that suggestion, but it is undeniable that the president is under a lot of political pressure here at home when it comes to consumer prices. Broadly, we talk a lot about inflation, but also gas prices, petrol prices specifically. You know, a lot of Americans use their cars every day to get around. More of them are going to get be getting behind the wheel as the holiday season approaches. It’s also getting colder, and people are going to be paying more to fuel their houses and keep their houses warm. All of which is leading the White House to want to push back and kind of suggest, at the very least, that they’re doing something to address consumer concerns.

Marc Filippino
Lauren Fedor is the FT’s Washington correspondent.

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In financial markets, all the fretting and betting over what central banks will do with monetary policy seems to have spilt over from the bond markets to currency markets. This week, the euro sharply dipped against the dollar. Yesterday, it sank to less than a dollar and 13 cents. That’s a 16-month low against the greenback. It also sank against the British pound. This is happening because currency traders are betting that the European Central Bank is going to stick to its current loose monetary policy, even as US and UK policymakers indicate they’re going to raise interest rates to counter inflation. The ECB has been pushing back against market expectations that it too will lift borrowing costs next year. One bank analyst said the market is positioning for a divergence between the Fed and the ECB. Another currency strategist says markets have finally cottoned on to the fact that central banks won’t all move together at the same pace.

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This week, the stock market value of the upstart electric truckmaker Rivian surpassed the market capitalisation of the world’s largest carmaker, Volkswagen. Now that seems odd to a lot of people. Consider that Volkswagen sold millions of cars last year and made billions of euros in net profit, while Rivian has not sold a single vehicle and made essentially nothing. And it’s not just Rivian, another unproven electric car maker called Lucid surpassed the market value of Ford. So what’s going on here? Our global motor industry correspondent Peter Campbell explains.

Peter Campbell
The very short answer is that it’s completely crazy. I mean by any sort of measurable way that you try and measure companies, whether it’s on earnings or revenues or anything, really. But what the market seems to think at the moment is that pure play electric car makers should be valued very, very high levels, much higher than traditional automotive companies. You know, there might be reasons why you think in the future they should be very highly valued. Rivian has very deep links with Amazon, has huge orders to provide trucks to Amazon. And so you might think that being the favoured in-house provider to one of the world’s biggest logistics companies is a very good long-term thing, and it might be. But the company still has a lot of execution risk. It still hasn’t made vehicles. It still has all of the hurdles Tesla had to overcome around ramping up customer service, high-volume manufacturing around managing supply chains. It still has those mountains to clear.

Marc Filippino
So, Peter, one thing I keep in the back of my mind is something that our colleague Patrick McGee told us about Tesla passing the $1tn mark. And that is, if you look at Tesla as a car company, its valuation doesn’t make any sense, right? But if you look at it as a tech company that got in early and dominated the field they’re in the crazy looking market cap makes a bit more sense. You know, what do you think of that?

Peter Campbell
I think that’s right, because I think some people have tried to justify the Tesla valuation and have said, well, look at what they’re doing in software. Look at the potential number of vehicles they could put their software into. Look at all the different things they’re doing that go beyond and above the traditional auto business of making some cars in a factory and selling them to some people. And the big question that you have is is whether other companies coming to the space should automatically be valued in that way, whether or not they’ve shown a lead in software, whether or not they’ve shown that they may have some autonomy product that might in the future be interesting. And so what we what we’re getting from the Rivian IPO and what we’ve had from the Lucid listing is an indication actually that the market is really interested in them just being a pure-play electric vehicle company far more than than anything else around software or any other potential revenue streams they might have coming in. I mean, just to give one example, Volvo listed recently. And it is quite likely that Polestar, which is a sub-brand of Volvo that is owned by Volvo, when it lists, Polestar is likely to have a higher market cap than Volvo, which is its own parent company, which is again, by any measure, a little bit on the crazy side.

Marc Filippino
Peter Campbell is our global motor industry correspondent.

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One of America’s most famous sports and entertainment arenas is getting a new name. The Staples Center in Los Angeles, now named after an ageing office supply chain, will soon be called Crypto.com Arena. The Singapore based cryptocurrency platform agreed to pay more than $700m for the naming rights on the arena for the next 20 years, but it could take a while for locals to get used to the new name.

Sara Germano
The Staples Center in LA, I mean, it’s actually really hard to talk about it by any other name because it is so ingrained in the community and landscape.

Marc Filippino
That’s our sports business correspondent Sara Germano,

Sara Germano
The Lakers, the Clippers, the Kings, all of the sports teams that play there, and so it really strikes a nerve with people when you talk about a name change because it makes you change your own vocabulary.

Marc Filippino
Sara has been monitoring local reactions, and she says it’s a mixed bag.

Sara Germano
So far, the local consensus in Los Angeles is, instead of calling it the Crypto.com Arena to call it “the Crypt” as a bit of a play on words and a little bit of a cheeky reference to some local gang activity in LA. But there’s also been a fair amount of people who have responded and said, you know, basically to paraphrase like, “It was born the Staples Center, I’m going to keep calling it the Staples Center.”

Marc Filippino
The new name is a boon for the venue’s owners, and they say they’ll use the proceeds to upgrade the facility. And it’s a huge win for the company trying to stand out in the fast growing crypto industry. Sara says Crypto.com is now the talk of the town.

Sara Germano
And you know you don’t pay 700m for these naming rights without wanting explicitly to have people talking about your company.

Marc Filippino
Sara Germano is the FT’s sports business correspondent.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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