XPEV - 7 Electric Vehicle Stocks to Avoid as They Continue to Sputter

2024-06-21 06:45:00 ET

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

I continue to believe that the electric vehicle industry will grow in the long term. Of course, investors need to moderate their growth expectations and the markets are already discounting that factor. Therefore, the correction in EV stocks is a good opportunity to accumulate quality names. Having said that, there are more EV stocks to avoid than EV stocks to buy. I would therefore remain very cautious in the stock selection process.

It’s interesting to note that the markets are already segregating the potential EV value creators from the losers. All EV stocks have been corrected, but there has been an absolute meltdown in some names. While there will be trading opportunities in oversold EV stocks, it’s best to avoid companies with poor fundamentals.

This column focuses on seven EV stocks to avoid from a long-term investment perspective. In my view, these EV stocks represent companies that are struggling with competition and cash burn. With the slowdown in the industry, there will be some consolidation. I believe that some of these EV companies are unlikely to exist in the next few years.

Lucid Group (LCID)

Lucid Group (NASDAQ: LCID ) has been an epic disappointment among emerging electric vehicle companies. It’s not surprising that LCID stock has been punished and continues to trend lower. Even after a correction of 60% in the last 12 months, I would stay away from the EV stock from an investment perspective.

Lucid had entered the EV arena with promises of stellar delivery growth. However, there has been a continued disappointment on the deliveries and production front. Further, cash burn remains high and implies the continued need for external financing for survival.

For 2023, Lucid reported operating level loss of $3.1 billion. On a year-on-year basis, losses widened. Additionally, for Q1 2024, operating losses were $730 million. It seems to be another year where operating losses are likely to exceed $2.5 billion.

Of course, Lucid has boosted its liquidity buffer to $5 billion as of Q1. However, that’s meaningless if cash burn sustains and delivery growth remains subdued.

Nio (NIO)

It’s been a wild ride for Nio (NYSE: NIO ) investors in the last five years. From being a penny stock in 2020, NIO surged above $60 the very next year. However, there has been a sustained correction and NIO stock is back below $5. I would not rule out a trading opportunity, but the EV stock is unattractive for long-term investors.

If I had to buy a Chinese EV company, I would look at the likes of BYD (OTCMKTS: BYDDF ) and Li Auto (NASDAQ: LI ) than Nio. An important point to note is that Nio has been struggling with relatively sluggish delivery growth. With the European Union announcing additional tariffs on Chinese EVs, the going will get tougher.

Specific to Nio, cash burn remains a challenge. For Q1 2024, the company reported loss from operations of $747 million. Given the industry competition and tariff-related headwinds, it’s unlikely that vehicle margin will improve significantly.

Nio ended Q1 2024 with a strong cash buffer of $6.3 billion. However, the markets are likely to focus on delivery growth and narrowing of cash burn. There will continue to be challenges on these fronts.

ChargePoint Holdings (CHPT)

With high potential for penetration and growth in the U.S. and Europe, there are several emerging EV charging companies. Given the intense competition, not all are likely to survive. ChargePoint Holdings (NYSE: CHPT ) is among the EV charging infrastructure providers that have a bleak future. Even after a massive correction of 80% in the last 12 months, CHPT stock looks unattractive.

One point worth mentioning is that most emerging EV charging companies are facing EBITDA-level losses. However, revenue growth has been robust with significant room for penetration. ChargePoint has disappointed even on that front.

For Q1 2025, the EV charging company reported revenue decline of 18% on a year-on-year basis to $107 million. Even for Q4 2024, revenue had declined by 24% to $115.8 million. I would therefore prefer to look at other EV charging infrastructure companies that have been reporting healthy growth.

Another point to note is that operating losses were 62.7% of revenue in Q1 2025. For the prior year period, operating losses were 61.5% of revenue. Therefore, losses have not be curbed. ChargePoint has guided for positive adjusted EBITDA by January 2025. That’s unlikely to be enough to reverse investor sentiment.

Polestar Automotive (PSNY)

Polestar Automotive (NASDAQ: PSNY ) seems to be in trouble and the same is reflected in the price action. PSNY stock has plunged by 82% in the last 12 months and trades at 70 cents. It’s an absolute meltdown and investor confidence in the business is possibly at an all-time low.

The delay in publishing Q1 2024 results adds to the negatives. The EV company now expects to report by the end of June. Earlier this week, Polestar announced plans for expansion in seven additional markets across Asia, Europe, and Latin America during 2025. The news failed to bring any cheer as the markets await quarterly filings.

It’s worth noting that in February, Polestar secured $1 billion in external financing . This provided a lifeline and the company also guided for EBITDA break-even next year. However, considering macroeconomic headwinds and competition, it’s likely that cash burn will be sustained through 2025. I therefore don’t see any positive catalyst that’s likely to trigger a reversal from seemingly oversold levels.

Mullen Automotive (MULN)

Mullen Automotive (NASDAQ: MULN ) is among the worst-performing EV stocks with a downside of 98% in the last 12 months. I would however not be surprised if MULN stock declines by another 90% from current levels of $2.55 in the next 12 to 18 months.

It’s worth noting that for the six months ended March, Mullen delivered 362 vehicles valued at $16.3 million. For the same period, the cash used in operations was $120.9 million. Clearly, the financial metrics are poor. In May, the company raised $150 million. However, that’s unlikely to be enough and there will be further dilution of equity for survival.

Looking at the press release, Mullen has talked about multiple order intakes in the last few months. However, none are big enough to have a significant financial impact. Further, competition is equally intense in the commercial EV segment. For Mullen, it’s a fight for survival and I don’t see much hope.

Lion Electric (LEV)

Lion Electric (NYSE: LEV ) is another EV company to avoid as it struggles to deliver profitable operations. As an overview, the company is a manufacturer of purpose-built all-electric medium and heavy-duty urban vehicles. LEV stock has declined sharply by 42% year-to-date.

For Q1 2024, Lion Electric reported revenue of $55.5 million. During the quarter, the EV company delivered 196 vehicles , which was lower by 24 on a year-on-year basis. Further, adjusted EBITDA loss for the quarter was $17.3 million.

Besides EBITDA level losses, my concern is that the vehicle deliveries declined. It’s worth noting that the current order book stands at 211 trucks and 1,793 buses. This represents a potential revenue visibility of $475 million.

While this seems encouraging, the annual manufacturing capacity for trucks is 1,500. Therefore, the capacity utilization is likely to remain dismal and will translate into continued losses. Overall, Lion Electric has managed to build an order book. However, significant scaling-up of operations in challenging market conditions is required to deliver profits.

XPeng (XPEV)

XPeng (NYSE: XPEV ) is a Chinese EV company that has struggled in the last few quarters. Business challenges faced are evident from the fact that XPEV stock has declined by almost 50% year-to-date.

It’s worth noting that XPeng was planning an aggressive expansion in Europe. Growth is likely to be impacted by the tariff on Chinese EV companies by the European Union. This is one reason for XPEV stock trending lower.

For Q1 2024, XPeng reported a total revenue of $910 million. For the same period, operating level losses were $230 million. While losses are likely to be sustained, XPeng reported a cash buffer of $5.73 billion. Therefore, on the positive side, there are no concerns related to dilution.

Another point to note is that the vehicle margin for Q1 2024 was 5.5%. In comparison, Li Auto reported a vehicle margin of 19.3% for the same quarter. Therefore, in an industry with intense competition, there are better players to consider.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .

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