You don’t have to be a visionary to see that electric vehicles (EVs) are the future. If you believe Cathie Wood1, global EV sales will increase nearly eight-fold over the next 5 years. Even a less aggressive estimate by consulting giant McKinsey projects EV sales quintupling by 2030. Explosive growth like that doesn’t come around often, so why wouldn’t you want to capture some of it as an investor?
You’re probably too late to the game on the front-runner, Tesla. The stock price is up so much in the last few years that there might not be much juice left to squeeze. An industry behemoth like Toyota or Ford could be a good bet, but you know the saying about old dogs and new tricks. What you really want is a newcomer. Someone who, like Tesla, can burst onto the scene and reshape the landscape.
Rewind three years and allow me to direct your attention to Lordstown Motors. Its investor presentation from 2020 reveals lofty ambitions – ramping up from its founding in 2018 to producing 65,000 vehicles by 2023. Its executive team is littered with esteemed veterans of the auto industry. “Key strategic relationships” touted by Lordstown include Samsung and Goodyear. General Motors, which surely knows a thing or two about the auto industry, invested $75 million of its own money in the company. Finally, let’s not dismiss the story’s human element: Lordstown, a down-and-out industrial town tucked in northeast Ohio, could become a beacon for a new-age manufacturing revival in the Rust Belt. A fairytale story like that captures media attention, especially when former President Trump poses with a prototype at the White House. The company even secured Joe Burrow as its brand ambassador.
Investment opportunities like this can be irresistible. Combine extreme growth projections with a can’t-miss thesis (EVs are the future), douse it with media hype, and you get a potent mix. Sometimes potency leads to explosive success, but sometimes it just blows up in your face.
Fast forward to today, and Lordstown Motors has filed for bankruptcy. In its entire history, the company produced just 65 vehicles, 99.9% below its 2023 goal. During that time, its losses from operations totaled $890 million, nearly $14 million per vehicle. Shareholders will likely lose 100% of their investment.
The point of this post is not to dunk on Lordstown Motors. I feel for its employees and the city at large2. Fortunately, the factory is scheduled to stay open and transition to manufacturing EVs from another startup, Fisker.
This post is a cautionary tale for investors. “Shiny objects” captivate our imaginations but aren’t necessarily part of a prudent investment strategy. Nobel-winning economist Paul Samuelson went as far as to say, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, go to Las Vegas.”
Employing a boring strategy is easier said than done. This is especially true today, with the constant bombardment of media (social and traditional) determined to induce and capitalize on your FOMO. If you let them, these distractions will derail you, because an investment strategy based on hype isn’t much of a strategy at all.
2 I’ve lived in Ohio my whole life and never plan on leaving. I love Ohio.
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