Send me real-time posts from this site at my email

Why Electric Car Stocks Are Buzzing Today

What happened

All up and down the electric vehicle (EV) supply chain, renewable energy stocks are hopping Monday after the U.S. Senate passed its historic Inflation Reduction Act of 2022, a piece of legislation that would throw tens of billions of dollars at the problem of climate change.

As of 12:45 p.m. ET, shares of Lithium Americas (NYSE: LAC), which mines lithium for use in rechargeable batteries, are up 4.9%; QuantumScape (NYSE: QS), which is researching new solid-state technology for use in those batteries, is gaining 2.1%; and electric luxury car builder Lucid Group's (NASDAQ: LCID) shares are up 4.8%.

So what

What is it, specifically, about the Inflation Reduction Act of 2022 that's got electric car investors buzzing with excitement? According to a "summary of the Energy Security and Climate Change Investments in the Inflation Reduction Act of 2022" prepared by Senate Democrats after the bill was voted through on Sunday, the legislation "includes over $60 billion to on-shore clean energy manufacturing in the U.S. across the full supply chain of clean energy and transportation technologies."

Among these:

  • $20 billion in loans would support the construction of "new clean vehicle manufacturing facilities" such as those Lucid needs.
  • $10 billion more is allocated as investment tax credits to build these facilities -- effectively a government grant (not a loan) to directly offset companies' capital costs.
  • $2 billion would go to retooling existing manufacturing facilities to focus on electric cars.
  • $2 billion more would "accelerate breakthrough energy research" like QuantumScape is doing.
  • $500 million will go partly to support the processing of "critical minerals" (such as the lithium that Lithium Americas mines and refines).

Now what

If all goes as planned, the legislation would "put the U.S. on a path to roughly 40% emissions reduction by 2030." But of more immediate interest to investors is the $60 billion in taxpayer support that would go directly to reducing operating costs at companies like Lithium Americas, QuantumScape, and Lucid, which will reduce the cost of their products and spur consumer demand for EVs -- ideally resulting in both rapid sales growth and higher profits for these companies.

They could sure use the help.

Over the past year, Lithium Americas lost $72 million -- and had no revenue to show for it -- according to data from S&P Global Market Intelligence. QuantumScape, also without revenue, racked up $237 million in losses.

Lucid, despite growing its revenue 31,000% in the first half of 2022 and using its $155 million (so far) in 2022 revenue to offset some of its losses, still ended up $1.9 billion in the red for the last 12 months.

Oh, and Lucid just announced that instead of the 20,000 electric cars it had hoped to build this year, it's now going to be lucky to sell only 6,000 or 7,000.

Make no mistake, the allocation of tens of billions of taxpayer dollars to subsidizing EV stocks and their suppliers is good news for these companies. It's not a guarantee, however, that any given EV stock is going to eventually earn a profit. In fact, it actually makes more sense to assume that government subsidies will be of the most use to EV companies that were already profitable to begin with, and don't actually need (but certainly won't turn down) the government support.

You can read about a few of those companies right here.

10 stocks we like better than Lucid Group, Inc.
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Lucid Group, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of July 27, 2022

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue