WKHS - Red alert: Avoid these EV stocks: FFIE MULN WKHS GOEV

2023-10-11 08:01:00 ET

The automobile industry is going through major changes as the world transitions to electric vehicles (EV). For example, the number of auto companies has grown rapidly in the past few years.

In the United States, Tesla Model Y has become the fourth best-selling vehicle this year. This is notable since the vehicle was only launched a few years ago. Other brands like Tesla Model Y and Rivian are also gaining market share.

China, the biggest market in the world, is also having changes as companies like Byd, Nio, Xpeng, and Li Auto are displacing traditional brands. There are now over 100 EV companies in China.

I believe that many small EV companies will not exist in the coming years because of rising losses and the challenges involved in the industry. Here are some of the top EV stocks to avoid.

Faraday Future

Faraday Future (NASDAQ: FFIE) is an EV company that is building luxury brands in the United States. The company has been a cash incinerator that lost over $1.4 billion in 2019, 2020, 2021, and 2022. Its net loss in the past twelve months stood at over $577 million.

Faraday Future is now looking for more cash as it seeks to ramp up production of its vehicles. In a statement last week, the company’s founder said that the firm was doing the best it could to find a strategic investor. This will not be easy in an era when short-term bonds are yielding over 5%.

The most recent results showed that Faraday Future’s cash crashed from $31.8 million in Q1 to $17.9 million. As Rivian has showed , EV companies need billions of dollars to ramp production. Rivian has already burned over $6 billion in the past few years and has recently raised additional cash.

Mullen Automotive

Mullen Automotive (NASDAQ: MULN) is another EV stock to avoid. Like Faraday Future, the company has burned cash in the past few years. It did that through its internal operations and its acquisitions of Bollinger Motors and Electric Last Mile Solutions (ELMS).

Mullen Automotive still has some good cash in its balance sheet. It ended last quarter with $214 million in cash and short-term investments. It has now decided to use some of this cash to repurchase its stock, a move I believe does not make sense since companies buy back shares using their free cash flow.

These funds will deplete soon since Mullen had a net loss of over $300 million in the last quarter. Therefore, I believe that MULN stock will remain under pressure for a long time.

Canoo

Canoo (NASDAQ: GOEV) stock price has been in a bearish trend for a while. It has plunged from $25 in 2020 to les than $0.50 today. This happened as the company continued burning cash as it gears for its vehicle deliveries. Canoo has lost over $500 million in the past four quarters.

Canoo’s benefits are that it is narrowing its losses and that it has a huge backlog of orders. Also, unlike Faraday Future, it is targeting a niche market in the deliveries industry. This makes it a better company than FFIE and Mullen.

The challenge for Canoo, as I wrote here , is that its balance sheet is not strong enough to fund these projects. It ended last quarter with just $5 million and accrued expenses of over $44.6 million.

Workhorse Group

Workhorse Group (NASDAQ: WKHS) stock price has nosedived from $42.80 in 2021 to $0.44. The company’s challenges are the same as the other threee. It has burnt loads of cash and finding financing wil be difficult.

It had over $140 million in cash in last year’s Q2 and $62.4 million in the same period this year. The company records over $23 million in quarterly loses. Therefore, it will need to raise additional capital to finance its operations.

The post Red alert: Avoid these EV stocks: FFIE, MULN, WKHS, GOEV appeared first on Invezz.