EV stocks such as Tesla and Nikola have registered multi-day gains. But how long can that last? Chris Versace, Chief Investment Officer at Tematica Research, warns that higher interest rates could still be a headwind for these stocks.

Video Transcript

AKIKO FUJITA: Let's put Nikola aside because [INAUDIBLE] brought up a good point that it does feel like there is this enthusiasm once again around EVs when you think about what's been happening with Tesla as well. Sure, there was that announcement with the partnership with GM as well as Ford. But is there a bit of FOMO trade happening? I mean, you talk about AI as one. EVs?

CHRIS VERSACE: So I think we've seen waves of that to be honest. I think we're kind of seeing some nice movement in the stock prices. You look at Ford over the last couple of days going from recently between 11 and 12 over 14 closing in on 15. My concern here just trying to capture the conversation we had earlier too is if rates do go higher, that means borrowing costs are higher. That's another headwind for automotive loans, right, because they will take higher too.

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So the whole thing that's fascinating to me is the real transformation in this industry, where everybody, right, Ford, GM, Stellantis, Ferrari, Volkswagen, they're all leaning in to this EV transition. And there are reasons for it, including some at least here in the States, some tax credits. They're helping foster EV adoption, right? There's some EPA regulations and all this other stuff that are going on.

So the industry is moving that way. I just think that it's possible that it might take a little longer than expected to hit some of these forecast numbers that are out there. And at the same time, right, you have to ask yourself, OK, the companies are spending and investing to do this, but if we do see a slowdown because of higher borrowing costs, what does that mean in the near term for their profit picture?

AKIKO FUJITA: But to pick up on that point about the higher borrowing costs, I mean you were talking about tech earlier. I mean, we saw these stocks get hit at the start of the rate hiking cycle, right? The expectation was that these companies aren't necessarily profitable. They've got a lot of debt. These are the companies that are going to get hit as a result of higher rates. And yet feels like we're kind of back to where we were before that in terms of the enthusiasm.

Sure, in tech you can talk about AI specifically. But EV, I mean, the growth has been happening. Why now? Why are we seeing this kind of rally?

CHRIS VERSACE: I think you've got a kind of differentiate, right? So there are some larger established players like the ones that I mentioned, Ford, GM. And then there's the ones, the Rivians, the Nikolas and the like. And it's very simple. You can't turn out-- what did we hear-- 10, 20 vehicles, right? And that's not going to cover the cost of your operation.