- CNBC's Jim Cramer warned investors against over-speculation in the electric vehicle market.
- "The bull market in Tesla is real and it's spectacular. The bull market in the rest of the electric vehicle plays feels way less substantial, and once again I'm warning you to stay away, no matter how awesome it seems," the "Mad Money" host said.
- "Especially now that Tesla's pulling back from its highs, I think it's time to stop overthinking this story and go with best of breed," he said.
Wall Street's craze for electric vehicle stocks is coming to an end after valuations ballooned to levels that are unwarranted, CNBC's Jim Cramer said Tuesday.
That is with the exception of Tesla, the Elon Musk-helmed electric-vehicle company whose stock price has increased fourfold from its low point in March.
"I think the rest of the electric vehicle space looks like a boom, and then more like a bubble, one that's already started to burst," the "Mad Money" host said. "We keep seeing more and more of them come public, often via reverse mergers with special purpose acquisition vehicles," known as SPACs, "and after some big moves higher, their stocks have started to implode."
The electric vehicle, or EV, market is an emerging segment of the auto industry powered by the growing consumer interest in more eco-friendly products. The International Energy Agency projects that the EV adoption will reach 125 million cars by 2030.
Investors have thrown money into EV start-ups to get exposure to the market with companies like Nikola, Nio, Li Auto, Tortoise Acquisition, Spartan Energy Acquisition and DiamondPeak, a special purpose acquisition company whose shares spiked nearly 27% since news broke Monday that it would acquire Lordstown Motors in a reverse takeover.
Cramer, a once long-time skeptic of Tesla who got behind the stock late last year, said investors are trying to get in on what they think could be the next Tesla. Shares of the electric-auto maker are up more than 255% this year, settling Tuesday at $1,487.
However, many of these speculative EV plays have no business to show for and justify their valuations, he said.
Nikola, a battery-electric and hydrogen-powered truck manufacturer that came public via an SPAC two months ago, saw its shares more than double to peak near $80 in early June and flutter below $39 as of Tuesday. The company plans to put an electric truck on the market next year with another to come in 2023.
Cramer said the stock is a "victim of its own success."
"In other words, most of the value here is in the idea, the concept, and that simply can't justify a $25 billion valuation, where Nikola was not long ago … or even a $14 billion valuation where it is right now," he said. "Now, the company just reported tonight and the stock got hammered in after-hours trading. I don't know what people expected. They don't have any products to sell yet."
Nio, which some call the "Chinese Tesla," entered public markets nearly two years ago. The stock, trading near $2 earlier this year, from March through July rode the Tesla wave as Tesla shares surged 354% to a peak close. Nio's stock price topped out when it closed near $15 in July and has since pulled back 9% to $13.64 Tuesday.
The company is a long way from profitability, Cramer noted.
"I think Goldman Sachs tells the tale perfectly here: they upgraded Nio from neutral to buy in early June when it was trading at $4, then downgraded it to neutral at $6, then slapped a sell on the stock after it broke out to the teens."
Meanwhile, some traders think otherwise about placing bets on the fledgling EV stocks. Boris Schlossberg, managing director of FX strategy at BK Asset Management, said Monday on CNBC that he thinks Nikola is the "first real interesting competitor to Tesla." Ari Wald, head of technical analysis at Oppenheimer, offered that Nio shares are consolidating after reaching overbought territory in July and to expect a "resumption of the uptrend."
Cramer, though, is skeptical of the speculation.
"The bull market in Tesla is real and it's spectacular. The bull market in the rest of the electric vehicle plays feels way less substantial, and once again I'm warning you to stay away, no matter how awesome it seems," he said.
"Especially now that Tesla's pulling back from its highs, I think it's time to stop overthinking this story and go with best of breed."