EV Stock Bubble: Lithium and the 2020-2021 EV Run

Key Takeaways

• Near-zero rates and SPACs lifted EV stocks and lithium prices through 2020 and 2021.
• Tesla joined the S&P 500 in December 2020 after rising 743% that year.
• Pre-revenue startups listed at huge valuations; several later went bankrupt.
• Lithium carbonate prices then crashed about 80% from late-2022 highs.

Background

For most of the 2010s, electric vehicles were a niche product and electric-vehicle stocks were a small, speculative corner of the market. Tesla was the only pure-play EV maker of real size, and it spent years burning cash and fighting doubts about whether it could mass-produce cars at a profit. The investment case rested on a forecast that gasoline cars would eventually give way to batteries, but the timeline was uncertain and the competition from established automakers had barely begun.

Two forces changed the backdrop in 2020. The first was monetary policy. As the pandemic hit, central banks cut rates to near zero and flooded markets with liquidity, which pushed investors toward long-duration growth stories whose payoff sits years in the future. The second was policy and sentiment around climate. Governments across Europe, China, and the United States signaled support for electrification, and a generation of retail investors became convinced that EVs were the defining growth theme of the decade.

That combination created fertile ground for a mania. Money was cheap, the story was easy to tell, and a new financing channel made it simple to take unproven companies public. Special purpose acquisition companies, or SPACs, let a private firm merge with an already-listed shell and reach the public market without the scrutiny of a traditional initial public offering. EV startups with little or no revenue used that route in large numbers, and the EV stock bubble grew from there.

What Happened

The run-up and the reversal both played out over roughly three years, with the peak in late 2021 and the unwind through 2022 and 2023.

• December 21, 2020: Tesla joins the S&P 500, added in a single step at its full float-adjusted weight, after rising 743% during 2020.
• February 22, 2021: Lucid Motors agrees to go public by merging with Churchill Capital Corp IV at a roughly $24 billion pro-forma equity value.
• July 29, 2021: The SEC charges Nikola founder Trevor Milton with fraud over false statements made to investors.
• October 25, 2021: Tesla's market value tops $1 trillion for the first time after Hertz says it will order 100,000 vehicles.
• November 10, 2021: Rivian goes public; at its opening price it is worth more than $100 billion, above both Ford and General Motors.
• June 16 to November 3, 2022: The Fed raises rates by 75 basis points at four straight meetings, the most aggressive tightening since the early 1980s.
• 2023: Spot lithium carbonate prices in China fall from about $76,000 per ton in January to about $23,000 in November.
• June 27, 2023 to February 19, 2025: Lordstown Motors, Fisker, and Nikola each file for Chapter 11 bankruptcy.

Tesla anchored the boom. After its 743% gain in 2020, S&P Dow Jones Indices added the stock to the S&P 500 effective before the open of trading on December 21, 2020, at its full float-adjusted market capitalization weight, an unusually large single-step inclusion. The shares climbed roughly another 50% in 2021, and on October 25, 2021, the company's market value crossed $1 trillion for the first time, lifted by news that rental firm Hertz planned to order 100,000 Teslas.

Around that peak, a parade of younger companies reached the public market. Lucid Motors agreed in February 2021 to merge with Churchill Capital Corp IV, a SPAC, at a pro-forma equity value of about $24 billion, and began trading as Lucid Group in late July 2021. Rivian took the traditional IPO route on November 10, 2021, pricing at $78 per share; the stock opened at $106.75 and the company was briefly worth more than $100 billion, higher than the roughly $87 billion value of General Motors and the roughly $80 billion of Ford, despite Rivian having delivered very few vehicles. Other SPAC-listed names, including Nikola, Lordstown Motors, and Fisker, had gone public earlier on the same wave of optimism.

Why It Happened

The EV stock bubble grew from a real demand story sitting on top of cheap money and a financing channel that rewarded promises over results.

The macro setup did much of the work. With policy rates near zero, the discount applied to far-off profits was unusually small, so a company expected to earn money in 2030 looked attractive in 2021. Low rates also pushed investors to reach for risk, and an unproven EV maker offered exactly the high-variance growth that thrived in that environment. When the cost of capital is near zero, the gap between a great business and a great story narrows, because both can raise money cheaply.

The SPAC channel amplified the effect. A traditional IPO requires audited history and tight rules on what management can project; a SPAC merger let a pre-revenue startup present multi-year forecasts of vehicles, revenue, and profit to public investors with far less friction. Companies that had never sold a car at scale were valued on slides showing production ramps that had not happened yet. That structure pulled the EV theme's most speculative names onto public exchanges at the height of enthusiasm.

The commodity leg followed the same logic. If the world was about to electrify, demand for battery raw materials would surge, so traders bid up lithium alongside the equities. According to the U.S. Geological Survey, the annual average price of battery-grade lithium carbonate reached $68,100 per ton in 2022. The problem with a story-driven move is that it assumes the demand will arrive on schedule. When EV sales grew more slowly than the forecasts, both the stocks and the raw material had priced in volumes that did not show up on time.

By the Numbers

• Tesla 2020 gain: the stock rose 743% in 2020 before its S&P 500 inclusion. (CNBC)
• S&P 500 inclusion: Tesla was added effective before the open on December 21, 2020, in a single step at full float-adjusted weight. (S&P Dow Jones Indices)
• Tesla $1 trillion: market value first topped $1 trillion on October 25, 2021, on the Hertz order news. (NPR)
• Rivian IPO: priced at $78, opened at $106.75 on November 10, 2021, and was briefly worth more than $100 billion, above GM (about $87 billion) and Ford (about $80 billion). (TechCrunch)
• Lucid SPAC value: about $24 billion pro-forma equity value in the February 2021 deal with Churchill Capital Corp IV. (esgtoday, reporting the company's figures)
• Lithium peak: battery-grade lithium carbonate averaged $68,100 per ton in 2022. (USGS)
• Lithium crash (US contracts): the annual average U.S. lithium carbonate price was $46,000 per ton in 2023, a 32% decrease from 2022. (USGS)
• Lithium crash (China spot): spot lithium carbonate in China fell from about $76,000 per ton in January 2023 to about $23,000 in November 2023. (USGS)
• 2022 EV declines: Tesla ended 2022 down 65%; Lucid fell about 82% and Rivian about 79% over the year. (Yahoo Finance, Benzinga, reporting market data)
• Fed tightening: the target range rose from 0.25-0.50% at the start of 2022 to 4.25-4.50% by December, including four straight 75-basis-point hikes. (Federal Reserve)

Aftermath

The unwind came in two waves: a valuation reset driven by rates, then a slower shakeout driven by operations.

The rate shock hit first. Through 2022 the Federal Reserve lifted its target range from 0.25-0.50% to 4.25-4.50%, including 75-basis-point increases in June, July, September, and November, the fastest tightening since the early 1980s. Higher discount rates are brutal for companies whose profits sit far in the future, and the most speculative EV names fell hardest. Tesla, the most established of them, ended 2022 down 65%, while reporting put Lucid down about 82% and Rivian down about 79% for the year.

The operational shakeout followed. Several pre-revenue startups that had promised production ramps could not deliver them and ran out of cash. Lordstown Motors filed for Chapter 11 bankruptcy on June 27, 2023, Fisker filed in June 2024, and Nikola filed on February 19, 2025. The legal consequences were sharpest at Nikola. The SEC charged founder Trevor Milton on July 29, 2021 with disseminating false and misleading information about the company's products, largely through social media. Nikola itself agreed to pay $125 million to settle SEC charges in December 2021. Milton was convicted of securities and wire fraud in October 2022 and sentenced to four years in prison in December 2023; he received a pardon from President Trump in March 2025 while his appeal was pending.

The commodity reversed too. After peaking in 2022, lithium prices collapsed as a feared oversupply, the expiration of China's long-running EV purchase subsidies, and weaker-than-expected EV sales took hold, per the USGS. Spot lithium carbonate in China fell from roughly $76,000 per ton in January 2023 to about $23,000 by November, a decline that contemporaneous reporting put near 80% from the late-2022 peak. The EV transition continued, but the market relearned that even a real secular trend does not move in a straight line, and that the inputs to that trend are deeply cyclical.

Lessons for Investors

1. A true growth trend does not justify any price. Electric vehicles really were taking share, yet Rivian was briefly worth more than Ford and GM combined with almost no deliveries. Confirm that a theme is real, then ask separately whether the stock already assumes a flawless decade. The two questions have different answers.

2. Cheap money flatters weak business models. When rates sat near zero, pre-revenue startups raised capital almost as easily as profitable firms. The 2022 rate increases, from 0.25-0.50% to 4.25-4.50%, exposed which companies had real cash flow and which had only a story. Test how a holding behaves if its cost of capital doubles.

3. A SPAC forecast is a marketing document, not an audit. The blank-check route let companies sell multi-year production and revenue projections with far less scrutiny than a normal IPO. Treat management projections, especially from a firm that has never delivered at scale, as a claim to verify rather than a fact to price in.

4. Commodities are cyclical even inside a growth story. Lithium demand is rising over time, yet the price still ran from $68,100 per ton in 2022 to far lower in 2023 once supply and subsidies shifted. A secular tailwind does not repeal the boom-and-bust pattern of raw materials, so size commodity-linked positions for large swings.

5. Watch the whole supply chain, not just the famous name. The same enthusiasm that lifted EV makers lifted lithium miners and battery suppliers, and the same reversal hit them. When you invest in a theme, map who else is priced for the same optimistic forecast, because they tend to fall together when the forecast slips.

Frequently Asked Questions

What was the EV stock bubble in simple terms? The EV stock bubble was the sharp rise in electric-vehicle and battery-related stocks during 2020 and 2021, led by Tesla and a wave of pre-revenue startups, much of it reversed in 2022 and 2023. Lithium, the key battery material, spiked and then crashed alongside the shares.

Why did the EV stock bubble happen? Near-zero interest rates made far-off profits look valuable and pushed investors toward risky growth stories, while strong climate and EV optimism gave them a theme to chase. The SPAC financing wave then let unproven companies reach public markets at high valuations with limited scrutiny.

How much did EV stocks and lithium fall? Tesla ended 2022 down 65%, and reporting put Lucid down about 82% and Rivian about 79% over the year. The U.S. average lithium carbonate price fell from $68,100 per ton in 2022 to $46,000 in 2023, and China spot prices dropped from about $76,000 to about $23,000 per ton across 2023.

Could an EV stock bubble happen again today? The pattern of cheap money plus a popular growth theme plus loose financing can recur in any sector, and SPAC rules have tightened since 2021 but the incentives remain. Higher interest rates now impose more discipline than the near-zero conditions that fed this episode.

What is the main lesson from the EV stock bubble? Separate the truth of a long-term trend from the price you pay for the stocks and commodities tied to it. A real shift toward electric vehicles still left buyers of the most hyped, pre-revenue names with heavy losses when the forecasts slipped and rates rose.

Sources

1. U.S. Geological Survey. Mineral Commodity Summaries 2024, Lithium. https://pubs.usgs.gov/periodicals/mcs2024/mcs2024-lithium.pdf
2. S&P Dow Jones Indices. S&P DJI Announces Implementation of Tesla's Addition to the S&P 500 (November 30, 2020). https://press.spglobal.com/2020-11-30-S-P-Dow-Jones-Indices-Announces-Implementation-of-Teslas-Addition-to-S-P-500
3. U.S. Securities and Exchange Commission. SEC Charges Founder of Nikola Corp. With Fraud, Press Release 2021-141 (July 29, 2021). https://www.sec.gov/newsroom/press-releases/2021-141
4. U.S. Securities and Exchange Commission. Nikola Corporation to Pay $125 Million to Resolve Fraud Charges, Press Release 2021-267 (December 21, 2021). https://www.sec.gov/news/press-release/2021-267
5. U.S. Federal Reserve. Open Market Operations, FOMC target rate changes (2022). https://www.federalreserve.gov/monetarypolicy/openmarket.htm
6. CNBC. Tesla's stock will be added to the S&P 500 in a single step before the open on Dec. 21 (November 30, 2020). https://www.cnbc.com/2020/11/30/teslas-stock-will-be-added-to-the-sp-500-in-a-single-step-before-the-open-on-dec-21.html
7. TechCrunch. Rivian valuation above GM, Ford in biggest IPO of 2021 (November 10, 2021). https://techcrunch.com/2021/11/10/electric-automaker-rivian-largest-ipo-2021/
8. NPR. Tesla's market value hits $1 trillion after Hertz agrees to buy 100,000 of its cars (October 25, 2021). https://www.npr.org/2021/10/25/1048953565/hertz-will-buy-100-000-teslas-electric-vehicles
9. CNBC. Trump pardons Nikola founder Trevor Milton in securities fraud case (March 28, 2025). https://www.cnbc.com/2025/03/28/trump-pardons-nikola-trevor-milton-ceo-securities-fraud-electric-vehicle.html

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.