In a previous article, we noted the bull market in electric vehicles (EV) and concerns of bubble-like behavior. The trend has only accelerated. The leading stocks in the sector like Tesla (TSLA  ) and NIO (NIO  ) are up 80% and 335%, respectively since then.

Bubbles do weird things to psychology. At one point, these stocks seemed to be the poster-child of excess in the stock market. However, as the EV bubble has grown and started to infect other stocks and adjacent sectors, these stocks seem to almost be reasonably priced by comparison.

Tesla and NIO

After all, these stocks at least have products that the public can't get enough of. They have a leading position in a market that is expected to grow exponentially over the coming years. In 2019, 2 million out of 80 million cars sold globally were EVs. By 2025, this figure is expected to exceed 5 million and by 2050, EVs will outsell other vehicles.

So, the opportunity is clearly there for some company. However, Tesla and NIO are already priced as if they have won the race. Tesla is valued higher than every automaker combined, while NIO has a higher valuation than companies like Ford (F  ) and General Motors (GM  ) which are producing millions of vehicles per year.

SPACs

However, NIO and TSLA are actually producing vehicles, implementing plans to expand production, and demonstrated the ability to create products that the public wants. All of these are not simple feats.

We now have multiple EV stocks that are years away from producing vehicles that have achieved multi-billion dollar valuations. Examples include Fisker (FSR  ), Hylion (HYLN  ), and CIIC (CIIC  ). Due to the public appetite for these stocks and SPACs, companies can go public with much less scrutiny of their financials and business.

Adjacent Sectors

We are also seeing the froth spill over into other parts of the market. Charging stocks like Blink Charging (BLNK  ) and Switchback Energy (SBE  ) have gone exponential in the past few weeks. This is despite the massive cost and complications of building out charging stations on a nationwide basis. Additionally, likely, gas stations will also build their own charging stations.

Another area of the market seeing big moves are battery stocks and companies that are involved in the battery supply chain. QuantumScape (QS  ) has more than quadrupled since November on reports that its batteries can be charged to 80% capacity in 15 minutes. This is a meaningful gamechanger for the entire EV sector, however, QuantumScape doesn't expect to begin production until 2025.

Conclusion

It's hard to argue with such price performance which makes any skeptic look stupid. However, these stocks should be treated as trading vehicles rather than long-term investments. In the short-term, given the bullish market environment, Federal Reserve policy, and an expected boost in growth due to the vaccine, there is little reason to expect a reversal. However, at some point, this will end in tears just like every bubble has in the past.