AMZN - EV Flop Which Of These 4 Will Fall To Zero: Lucid Fisker Polestar Or Rivian

2023-11-09 12:20:00 ET

Summary

• Tesla, Inc.'s stock price has rebounded significantly from its lows in 2023, despite concerns about CEO Elon Musk's distractions and profit margins.
• Competitors Lucid Group, Fisker, and Polestar are at risk of trading towards zero due to financial challenges and weak profitability.
• Rivian Automotive is also burning plenty of cash, we discuss the pros and cons of these stocks.

At the height of last year’s stock market sell-off, Tesla, Inc. ( TSLA ) looked like it would trade below $100 in 2023. That did not happen. At the time, concerns mounted that X, formerly known as Twitter, would distract CEO Elon Musk’s leadership in the electric vehicle ("EV") firm. I recall thinking that Tesla’s price cuts would crush its profit margins.

TSLA stock bottomed at $101.81 and traded at an almost $300 high ($299.29 to be exact) in 2023. The price cuts spurred consumers to not just consider a Tesla vehicle, but to buy one. The latest price cut, however, lost its magic in lifting Tesla shares. Despite crushing competitors, the cost is that its margins will fall .

Tesla still has the first-mover advantage in the EV space from over a decade ago. Other firms must use the charging network, enriching Tesla.

As pricing pressure mounts and consumers scoff at buying EVs at up to a six-figure price tag, which of the EV stocks will fall to zero? Fisker Inc. ( FSR ) has an affordable EV on the market, but Tesla may produce a EUR 25,000 EV out of Germany . Which firm(s) are at risk of filing for bankruptcy?

We begin in no particular order with Lucid Group.

1/ Lucid Group, Inc. (LCID)

Seeking Alpha premium subscribers already saw the warning on LCID stock before the heavy losses posted in the last quarter.

Lucid posted revenue falling significantly, down by 29.5% Y/Y to $137.8 million . It lost 28 cents a share on deliveries of 1,457 vehicles in the third quarter. The company cut its production outlook for 2023. It guided on production of 8,000 to 8,500 vehicles, compared to 10,000 previously.

Bears have a 25.16% short interest against LCID stock. It has a Seeking Alpha quant rating of “sell.” The stock has one “A” grade:

Since Lucid reported a total liquidity of $5.45 billion ( slide 5 ), how is bankruptcy a possibility in the coming years? The firm started producing the Lucid Air Pure real-wheel drive. It unveiled the Gravity SUV in November 2023. It wants to capture the more popular SUV segment as consumer interest in cars weakens. Lucid will start producing the Gravity SUV in late 2024. This will require more capital expenditure and marketing costs. Expect a negative cash flow increase for the next year.

When asked when Lucid will expand its operations and become a profitable company, xx Sherry House cited a cost control program and efficiencies. These are standard buzzwords that do not outline how Lucid would achieve unit sales growth at lower costs.

Lucid has a high chance of trading toward zero. A zero-dollar share price also means 99 cents in my book. Plenty of pre-bankrupt firms like WeWork ( WE ) and Lordstown Motors traded in that range before trading halted.

2/ Fisker Inc. ( FSR )

Selling accelerated when Fisker’s stock failed to hold the $6.00 support price. Short sellers have a 44.6% short interest against the stock. Panic accelerated when the firm delayed its Q3/2023 financial results. It will report earnings on November 13, 2023, after the market closes . User Who Dat pointed out that “the electric vehicle maker said the delay is due to the departure of its former chief accounting officer on Oct. 27 and the hiring of a replacement on Nov. 6.”

Fisker could have posted results on Oct. 26, a day before the CAO’s departure.

Fisker has distracting side projects that do not increase its addressable market or increase sales. For example, it opened a Lounge in Shanghai, China . China is the home to fiercely competitive EV firms struggling to survive. Nio ( NIO ) has NIO House: Beyond a Showroom. XPeng ( XPEV ) has a VIP lounge. However, the Chinese consumer is losing savings in the post-pandemic economy. Their home values are dropping. Real estate accounts for at least 30% of China’s national GDP and 80% of household wealth, according to Gavekal Research.

Now that meme trades are rare due to tight credit conditions and weak markets for penny stocks, Fisker stock has a high chance of trading toward zero next. In June, it burned through -$88.2 million . It has $467.5 million in cash and equivalents left .

3/ Polestar Automotive Holding UK PLC ( PSNY )

Polestar is one of my five stocks picked to sell as tax-loss selling begins . It also has a quant score warning of performing badly. The firm has weak profitability:

The line in red shows FSR stock fading quickly. The high interest rate environment is demolishing FSR stock, which has a -379% return under the S&P 500 (SP500).

Geely Automobile Holdings Limited ( GELYY ), a Chinese firm, owns Polestar. Increasing trading tensions between the U.S. and China could hurt Polestar’s business in the U.S. Volvo’s ( VOLVF ) ownership of the firm confuses Polestar’s customer base. They may consider a Volvo EV over that of Polestar. Will Volvo promote Polestar’s EV equally to its vehicles?

Polestar posted an adjusted net loss of $318 million . Revenue grew by a solid 40.8% Y/Y to $613 million. It ended Q3 with cash and cash equivalents of $951 million . After losing $735.0 million in the first nine months ended September 30, 2023, its survival is questionable. In Q3, it posted an operating loss of $261.2 million. Selling, general, and administrative expenses increased by 32% to $236.2 million.

Gross profits fell by 63% to $36.3 million, hurt by “higher contract manufacturing, warranty, and freight costs, irregular supplier charges related to batteries and semiconductors, and increased inventory impairment.”

4/ Rivian Automotive, Inc. ( RIVN )

Truck EV supplier Rivian popped at the open after posting Q3 results , only to fall to $17.00 by the end of the day.

The stock initially raced higher, breaking the EV sector slump . Rivian amended its exclusivity agreement with Amazon ( AMZN ). This increases its total addressable market, or TAM, allowing it to sell commercial vans to other customers.

Markets are skeptical. The US Postal Service picked Oshkosh ( OSK ) to supply Next Generation Delivery Vehicles in 2022. These vehicles include both battery-electric vehicles along with those having low-emission internal combustion engines.

Truck EV competition is mounting. Ford ( F ) roared ahead with the Lightning truck EV. These days, factory adjustments, extended quality inspections , and the impracticality of a truck EV over a gas-powered one are hurting Ford.

Rivian must contend with the looming release of Tesla’s Cybertruck.

In the third quarter, Rivian lost $1.19 a share . Revenue grew by a respectable 150% Y/Y to $1.34 billion. Importantly, it raised its total production guidance to 54,000 units. In the period, the net cash used in operating activities fell to $877 million ( page 11 ). This is down from $(1,368) million last year. Rivian ended Q3 with $9.133 billion in cash and cash equivalents.

In the quarter, Rivian lost $1.44 billion. At this burn rate, the firm needs to shrink its LCNRV – lower cost or net realizable value. This improved by ~$2,000.

Worries of a recession, which could hurt EV demand, should lower commodity costs. This improves Rivian’s R1 material cost per unit. In addition, it is in a good position to re-negotiate supplier prices lower from here.

RIVN stock is unlikely to trade toward zero. It has the consumer and commercial market opportunities ahead. It may easily raise cash to fund its growing operating costs.

Two Big Opportunities Emerge

EV investors should follow the lithium mining and battery market. Competition in the vehicle market will intensify but the need for source materials and related technologies will only grow. Albemarle ( ALB ) investors would have anticipated the firm’s guidance cut as EV demand weakened in the last year. Solid Power ( SLDP ), which is down by over 40% since March 2023 , gained 10% at the time of writing. The battery developer’s -$0.08 EPS loss and revenue of $6.4 million is not material . Look instead at its progress.

On the conference call , Solid Power said that it shipped over 80 EV cells to BMW ( BMWYY ) in Q3. Once BMW validates the sample, it will use those cells for its full-size EVs next year. The company will increase electrolyte powder production. By the end of the year, it will produce 1.25 metric tons monthly. Already, it supplied samples to two potential customers.

While the EV TAM shrinks for all but Tesla, Solid Power is expanding its market globally. It will establish a presence in Korea and elevate its supply chain. During the quarter, it worked with its suppliers to address the root causes to address grade material issues.

SLDP stock has the potential to reward investors as major players back sulfide-based All-Solid-State Batteries.

Your Takeaway

All of the EV firms mentioned have high risks. They all have a strong chance of trading to or toward zero. Among the EV picks, Tesla is an undisputable leader to buy and hold. Among the other four, Rivian is the next most attractive buy. It has a focus on the truck EV segment that has a good chance of keeping ahead of Tesla’s Cybertruck. More importantly, consumers may find it more appealing than the Ford (F) Lightning, General Motors’ ( GM ) Silverado EV, and Ram 1500 Ramcharger made by Stellantis (STLA).

The EV “flop” has a wide halo pulling downstream suppliers lower. Lithium firms like Albemarle are sharply lower. Investors now fear it may lose market share to China . Battery developers like Solid Power traded dangerously to a $1.20 low. Still, its continued development and validation from BMW is a hidden opportunity for EV investors. The firm said its sample EV cell shipments will result in powering a full-size BMW EV in 2024 .

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