Abstract

The electric vehicle (EV) sector’s dramatic trajectory from a 900% market capitalization surge in 2020–2021 to a widespread collapse by 2025 exemplifies a "big market delusion"—where investors overestimated the success of early entrants in a transformative industry, ignoring historical consolidation patterns. This paper analyzes how speculative fervor, rather than economic fundamentals, drove valuations to unsustainable heights, only for competition and capital constraints to trigger a brutal shakeout. We document substantial losses, with billions evaporated as firms like Rivian and Nikola faltered or failed. Tesla’s outsized valuation, defying traditional metrics, fueled the bubble, while Chinese manufacturers, leveraging state-backed innovation and pricing, reshaped global competition and pressured Western startups. Our findings underscore the value of fundamental weighting—allocating investments based on tangible metrics like sales rather than market hype—as a safeguard against such bubbles. This study offers a cautionary lens on emerging markets and a practical guide for disciplined investing.