KEY POINTS

  • Gas prices are on the rise.
  • Electricity appears to be a more cost-effective method of powering a vehicle.
  • Investors must be aware of the danger to EV stocks.

Why are EV stocks up?

Oil prices continue to climb [READ: HOT OIL STOCKS] and EV stocks are up again. Chinese EV maker Nio (NYSE:NIO) stock rose 1%, while Tesla (NASDAQ:TSLA) rose 2.1%. But, Nikola (NASDAQ:NKLA) was leading the way with a 9.3% increase.

Why do we care?

On the one hand, high gas prices have many believing now is a great time to buy electric cars and EV stocks. Gas costs have reached $5 a gallon in California and are approaching $5 in Hawaii. Furthermore, prices have already passed $4 in much of the Pacific Northwest and Northeast. Meanwhile, Tesla owners are starting to flood Twitter (NYSE:TWTR) with tweets bragging about how much cheaper it is to “fill up” their cars with electrons rather than hydrocarbons.

At the same time, concerns are growing about how many electric car companies will succeed in a world where some of the critical components required to build those vehicles seem to be running short.

What‘a next for EV stocks?

According to a note from investment bank Morgan Stanley, the “ever-widening gap” between car companies’ pledges to make X number of electric vehicles annually and battery manufacturers’ ability to produce all of the batteries required to operate them is “increasingly [concerning].”

Difficulty reaching goals

In this regard, Morgan Stanley is most certain that Tesla and select Chinese manufacturers (read: “Nio”) have secured adequate manufacturing capacity to guarantee they can meet their production goals. But each battery used in a Tesla or Nio won’t be available to power an electric vehicle from Ford (NYSE:F) or an electric truck from Nikola.

As a result, Morgan Stanley advises investors to apply a “generous” discount to any production claims that companies other than Tesla or Nio make – and assume the companies will not meet them.

Raw materials shortages

One more thing to bear in mind is the possibility of supply disruptions for raw materials such as nickel. Which is a significant concern given the current economic turmoil in Russia. According to some analysts, prices of electric automobiles may go up due to shortages. For example, according to Morgan Stanley, nickel shortages alone could raise the cost of an average electric vehicle by $1,000.

The Takeaway

In a period of high gasoline costs, electric cars may become more prevalent. But unfortunately, they may also get more expensive, limiting demand and profit margins for the firms that produce them. What will that do to their stocks? While the makers have some serious issues to work out, EV stocks are up for now.

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