I will go into my prognosis, but I would like to make it very clear at the beginning:
I am convinced that battery-electric vehicles are the future of individual transport and that the combustion engine will only remain in a few niches. The electric powertrain is cheaper, more comfortable and technically much more advanced. Nevertheless, I think it is important to constantly question this future technology and think about where you and your companies stand and how they are aligning themselves for the future.
On the one hand, I am thinking of a classic speculative bubble with this forecast, which we will see on the stock market. On the other hand, there are actually quite superfluous products that are just supposed to follow the hype and are designed for a quick buck. But that is quite theoretical for some people. Hence two examples from history. These show two versions of how something like this can work and are what we are now seeing in e-mobility:
- New companies are sprouting up and old ones are thriving by tying the company to be associated with e-mobility somehow and thus being part of this promising new branch in the eyes of many inexperienced investors. (-> Dot-com bubble)
- Products and topics that were developed with relatively little effort, have a link to e-mobility, but ultimately offer little actual added value. (-> Video Game Crash)
At this point I would like to make it very clear: I do not own any shares and I do not intend to advice in any way or for with this article. My intention is to show clearly that all that glitters is not gold and that there are good reasons to question companies dealing with e-mobility.
In addition, another important piece of information: In the course of the article, I will present both the development of the Dot-com bubble and the Video Game Crash in a simplified manner and omit individual factors that, in my opinion, are not important in the context of this article. Nevertheless, both events were much more complex than described here and it is advisable to do some research yourself. Ultimately also because the Dot-com bubble had already repeated some things from the Video Game Crash, but I have separated them here for the sake of illustration. And it goes without saying that stock prices are not only dependent on bubbles, but also on many other factors, which I will not go into further here.
The Dot-com bubble of 2000
It was the mid-1990s and due to ever faster computers, the spread of the Internet and the advent of the first real mobile phones, there were many new companies that wanted to take part in the revolution and help revolutionize it. Companies such as Google (1998), Amazon (1994) and Netflix (1997) are from this period.
Parallel to this boom, there was a new trend that even the inexperienced were getting to grips with the stock world and starting to invest. Since the Internet was seen as the next big thing, and of course also because it really was, many newcomers decided to invest in corresponding Internet companies. They also wanted a share of these company's success, through rising stock prices. Due to the lack of experience of many new investors and due to the hype, it came to the point that too much was paid and this is how the bubble developed. One then speaks of the fact that companies are overvalued, i.e. the stock market value overrides the actual value.
It may well be that companies on the stock exchange have a higher value than they are currently worth. But then it is usually already priced in what the company will be worth in the future. The end of the bubble came when it became increasingly clear that many companies would not be able to meet the expected profit distributions. Of course, it was the professionals who recognized this first and sold quickly. Accordingly the prices fell and when the new, often inexperienced investors noticed, they sold their shares at practically any price. In this way, the price drop turned into a price crash and the bubble burst faster than you could see.
What can we deduce from the Dot-com bubble for today?
The Dot-com bubble is the main reason I've stayed away from stocks. In terms of e-mobility, we're back to a point where all sorts of people are investing in e-mobility stocks. I do think that Tesla, for example, rightly has a very high share price. After all, the future of the brand should look very bright. Nevertheless, I ask myself whether it should really be as high as it is currently. Elon Musk himself had already publicly doubted that.
My father always says. "If all of a sudden you get tips about stocks from all sorts of people, sell everything immediately! It's a bubble". And when I look at how you're now getting tips on stocks from new and inexperienced private investors on Twitter and Facebook, I think we're in the middle of a bubble like that. I also see this in the boom in trading apps for smartphones. And of course also because I myself write about it with my hobby blog, with the actual topic of smart ED & EQ.
Furthermore, we saw that many companies had written "Internet" on their product or company flag, figuratively speaking. I see that again today. I see the best example here at the German Heidelberger Druckmaschinen AG: This german company has developed very price-oriented wall boxes itself and these accounts for just 1% of the company's turnover. Wall boxes, which are in the lower price segment, have hardly any margin and are technically very optimized for the only thing they have to be able to do: charge a car. But apart from the price, they don't have any features or know-how that speaks for Heidelberger AG. The course, in turn, does not necessarily reflect this. Many inexperienced investor buy shares as if the company only had wall boxes and isn't still very dependent on its printing presses.
The Video Game Crash from 1983 to 1985
It all started in 1979 when former Atari employees founded Activision. Atari was the largest and best-known manufacturer of home game consoles at the time. Activision was founded because Atari didn't want to credit the programmers by name in their own game credits. Activision programmed games for Atari's most popular device and was then directly sued by Atari. Atari's point of view was that nobody else can sell games for their device. The court contradicted this in 1982 and allowed everyone to program games for other consoles.
This decision in itself was of course a good thing. But as a result, all sorts of companies suddenly began to develop games for well-known consoles. The manufacturers of the consoles lost their say and the quality of the games went down continuously as a result. More and more companies came up that wanted to make quick money and brought increasingly uncreative and worse games onto the market.
In addition to the declining quality, the market was flooded, this is referred to as oversaturation. Not only were there lots of bad games, there were also significantly more games than customers for them. The collapse then came in December 1982 when, after a disappointing Christmas season, many retailers unsuccessfully tried to return unsellable games to the manufacturers. Not only did they have no money to take the games back and compensate the dealers, they also had no good games to compensate for the bad ones. Word was spreading about what had happened and people were moving away from games and game consoles. The market collapsed accordingly and between 1983 and 1985 the bubble burst.
This was so drastic that Nintendo deliberately did not call their latest console a game console, but the "Nintendo Entertainment System" ("NES"), which then became a very popular console and slowly allowed the topic to flourish again. In addition, Nintendo introduced that there were games that were officially approved by Nintendo.
Nintendo survived the bubble bursting, but brands like Activision and Atari never really recovered.
What can we deduce from the Video Game Crash on today?
As explained above, all that glitters is not gold. It was even clearer with the Video Game Crash than with the Dot-com bubble that companies unlovingly pulled something out of a hat in order to make a quick buck. Accordingly, it is certainly not a mistake to question products and companies and to consider whether they really open up a market or just part of the hype trainare.
In addition, companies, for example, should consider whether they still have customers when the first boom is over. An example: Of course, wall boxes are currently being sold in breathtaking numbers. But at some point the market is saturated and then you have to be positioned in such a way that you've got know-how and that you can still offer added value even on this saturated market. Here again the rule of thumb applies that you prefer to grow a little more slowly, but also pull up company structures and know-how. This is much more sustainable for the survival of the company than rapid growth, which then suffocates you.
Of course, this primarily affects new companies. But even long-established companies have to consider whether they can still add value once the market is saturated. In the case of e-mobility, it is not only the conversion to the new powertrain, but also the digitization of the car itself, which is necessary to remain sustainable.
For example, I also remember the electric car rental boom of 5-7 years ago (at least here in Germany). At that time, there were small rental companies all over Germany that specialized in electric cars and aimed for everyone to be able to drive and experience one. But when there were more and more electric cars and, accordingly, more and more people who knew someone privately who had one, the rental business model collapsed. Only a few survived that and even the big ones struggled and possibly even had to fusions with others.
Of course, there will also be companies that will survive their bubble. Amazon, Google, Nintendo and Sega are good examples here. Even if it had shaken them themselves and they also had to recover from it after the crash. Nevertheless, the majority of companies in their segment go under with their bubble. I see that in electric mobility in relation to wallbox manufacturers, new but also established car manufacturers, as well as service providers related to the topic. Now, of course, the task for investors is to anticipate who that will be and who has the right nose. In the end, it's just speculation, as is this article. And of course, that's also a question company leaders have to face. The same also applies to pre-ordering of future products, here too you should consider whether the company will still exist until then and can actually deliver the product. In my opinion, it is a good indicator whether the head of the company drives fully electric.
At the same time, I also see that some companies will emerge from this bubble more successfully than ever. These can be old brands that have realigned themselves, but it can also be new companies that open up a new market. It will be exciting to see which brands and companies this will ultimately be.
And the old rule for investors still applies: Don't buy what you don't understand.
Edit 30. March 2022:
A great video by Marques Brownlee. Taking the topic and looking a bit different at it but in summery also telling that you should question everything sounding electric cars these days.