The auto business has been a notoriously poor industry for long-term investors. Look back over a century, and automakers have gone boom and bust, with very few companies spared from the industry’s volatility. Over time, there aren’t many durable competitive advantages in mass-market vehicles, whether you’re looking at styling, brands, or operational excellence, and margins are thin as a result.
Add in volatility in auto volumes and you have a recipe for disaster for investors, which is why legacy automakers like General Motors, Ford, and Toyota all trade for price-to-sales ratios under one and often have P/E ratios in the single digits or teens.
Investors haven’t given electric vehicle (EV) stocks the same low valuations. And in some cases, they haven’t even waited for the companies to generate revenue before giving them multibillion-dollar valuations, betting their business model will be better and more profitable long term.