ESG Risk Ratings and Stock Performance in Electric Vehicle Manufacturing: A Panel Regression Analysis Using the Fama-French Five-Factor Model

As electric vehicles (EVs) gain prominence in the global shift to sustainable mobility, Environmental, Social, and Governance (ESG) factors are increasingly vital for investment decisions in the automotive sector. This study investigated the link between ESG risk ratings and the financial returns of EV manufacturers, addressing the growing need to understand how sustainability impacts financial performance in this key industry. A panel regression analysis was conducted on a sample of EV firms, categorized by ESG risk, employing entity and time-fixed effects within the Fama-French five-factor model, enhanced with lagged ESG pillar scores. The analysis reveals a context-dependent relationship. For Low ESG Risk firms, strong prior-period governance positively drives stock performance, while prior environmental scores show a negative correlation. Conversely, High ESG Risk firms require broad ESG improvements, especially in governance, to improve market sentiment, though prior ecological and social gains alone do not guarantee immediate return benefits. The Fama-French model’s explanatory power varies modestly across ESG risk groups, with firm size consistently significant. These findings are useful and important because they demonstrate the nuanced and non-uniform market valuation of ESG in the EV sector. They suggest that effective ESG strategies and investment decisions in this sector must be context-aware and tailored to specific ESG risk profiles, moving beyond generic approaches. This study contributes to a more refined, actionable understanding of ESG’s complex role in EV financial performance, directly informing corporate sustainability strategies and targeted investment approaches critical for achieving a net-zero emissions future.