What investors can learn from all the Tesla, Rivian buying and

Rivian shares have been under pressure, but at a market capitalization of over $100 billion, bigger than GM and Ford, it would be hard to say the electric vehicle upstart isn’t a major success. The buying and selling action in EV stocks lately has been intense, from all the fuss over Elon Musk’s selling of Tesla shares to former Tesla executive Peter Rawlinson’s Lucid Group, which went public earlier this year and is now at a valuation over $80 billion, just about as big as the Detroit stalwarts.

As the stock market faces a new test after President Joe Biden reappointed Jerome Powell to lead the Federal Reserve, leading to market calls that investors are about to cycle back into value stocks and away from the hottest growth names ahead of interest rate hike pressures, Tesla’s competitors have been giving back some gains. Are EV stocks in a bubble?

CNBC recently spoke with Nick Colas, co-founder of DataTrek Research and a former Wall Street auto industry analyst, about what’s going on in the EV space.

Rivian‘s valuation is extremely high, according to Colas. “There is no getting around that. Any time you are talking about a company that hasn’t sold any product yet and has a $100 billion valuation it is a huge valuation, but it is not necessarily a bubble,” he said.

Tesla itself did not have an $80 billion-plus market cap until early 2020, Colas noted in a recent research note, and by then, it was producing 100,000 vehicles a quarter. Rivian is just starting to ship its first customer vehicles now.

The recent investor interest in EV stocks and their valuation gains reflects one element of what makes a bubble: an imbalance between the supply of a particular investment desire and demand. Market bubbles can form when too much money is put to work in a particular area that is short on supply. Overall, Colas isn’t worried about the stock market being in a bubble that pops any time soon because the liquidity in the market remains high, as do household savings which will continue to pursue market gains. But within the longer-term EV story, there is the fact that investors are chasing the few names available to them.

“Investors are looking for any possible play in autonomous vehicles and EVs and there is a real shortage of opportunities, and that’s why a Tesla or Rivian is so highly valued. Because there aren’t enough EV stocks out there,” Colas said. “You do have to provide the market with what it wants, or it creates bubbles to some degree.”