3 EV Stocks Smart Investors Shouldn’t Touch With a 10-Foot Pole

Undoubtedly, electric vehicle stocks have been on a roll in recent days. Sparked by positive comments about the sector from Chinese President Xi Jinping, the lack of a big Republican victory in America’s recent congressional elections, and China’s reopening initiative, the beleaguered sector is definitely in the midst of a comeback. Another factor that may have boosted the sector was the 887% month-over-month jump in Tesla’s (NASDAQ:TSLA) China exports. But despite all the good news, there are still some EV stocks to avoid.

Among the red flags to look out for are indications of major technological defects and signs of low or faltering demand for companies’ vehicles. Other signs include evidence management teams with questionable backgrounds and overexaggerating their achievements.

These three EV stocks to avoid all have one or more red flags.

Lucid Group (LCID)

I’ve long worried that the demand for Lucid’s (NASDAQ:LCID) EVs could be lackluster due to indications that the EV maker was not creating enough “buzz” in both social media and traditional media, along with the intense competition it faces in the luxury EV market.

Now I’m even more concerned about the latter issue. That’s because Lucid recently reported that its total number of reservations declined to 34,000 earlier this month from 37,000 in August. The drop is concerning since 34,000 total reservations is a rather small number, given LCID’s market capitalization of $20.5 billion. The downturn also indicates that Lucid is attracting few new customers. And that some consumers might be switching from planning to buy an EV from Lucid to seeking to buy one from rival EV makers.

Some caveats, however, should be added to these statements. First, Lucid delivered nearly 1,400 EVs in Q3, so roughly half of the decline in its reservations may have been caused by almost 1,400 reservation holders receiving their vehicles. And secondly, the 37,000 order total does not include 100,000 EVs reserved by the government of Saudi Arabia, which also happens to be Lucid’s largest investor.

Also noteworthy is that Lucid’s Saudi patrons plan to supply the EV maker with another $915 million soon. Given the Saudis’ involvement, Lucid will not go bankrupt anytime soon.

Still, even the Saudis don’t have unlimited funds or endless needs for EVs, so I assume they will not order many more EVs from Lucid or buy much more LCID stock. (They already own a majority of Lucid’s shares).

With LCID’s high market cap, it should its orders by at least 20%-30% over the next six months. If not, its shares could sink. Thus, this is one of the EV stocks to avoid.

Workhorse Group (WKHS)

Founded in 2007, Workhorse Group (NASDAQ:WKHS) is not a young company, unlike many other EV makers. Nonetheless, in the third quarter, the automaker’s revenue came in at just $1.55 million, while it anticipates generating only $15 million to $25 million in sales for all of 2022.

Moreover, Workhorse has had numerous technical issues in the recent past. For example, in September 2021, it had to make multiple “modifications” to its C-1000 electric trucks to enable them to meet federal “safety standards.” Consequently, it stopped delivering the EVs and recalled all 41 vehicles its customers had already received.

Even during Worhorse’s Q3 earnings call, held earlier this month, WKHS CEO Rick Dauch reported that the company was continuing to have issues with the C1000’s “rear suspension component [which] proved to be insufficiently designed.”

With the company’s history of ongoing technical issues, it will have trouble ever generating much demand for its EVs. I expect WKHS stock to decline much further in the coming months and years. It still has a market capitalization of $443 million.

Mullen Automotive (MULN)

With some companies, as with some people, you can’t always accept what they say at face value. In other words, the news they deliver “might not be what it seems,” as the expression goes.

A prime example is a deal Mullen (NASDAQ:MULN) announced in July to sell “up to 600 Mullen Class 2 EV cargo vans over the next 18 months” to DelPack Logistics, LLC, which was identified in Mullen’s press release as “an Amazon Delivery Service Partner.”

The phrase “up to” is troubling since four EVs, two EVs, or one EV can be “up to 600 EVs.” And crucially, nowhere in its press release does Mullen say that DelPack has to buy a minimum number of EVs under the deal.

While researching this article, I became curious about DelPack, which I had never heard of before. But its status as “an Amazon Delivery Service Partner” makes it sound like a large, prosperous company. However, thanks to the power of Google and my curiosity, I discovered that DelPack is probably not very large and likely does not generate huge profits.

That’s because, according to a U.S. Department of Transportation website, DelPack Logistics has a total of 12 drivers and six “Power Units. ” The latter term identifies the number of large vehicles owned or leased by the company.

The U.S. government identifies DelPack of only having 12 drivers and six vehicles. Thus, in all likelihood, DelPack not going to buy hundreds of EVs from Mullen for the foreseeable future. Nor is it a stretch to say that DelPack probably won’t even buy 12 EVs in the foreseeable future.

Add in negative allegations about Mullen’s CEO and Mullen by a short seller and the company’s (so far) unfulfilled promise to identify a Fortune 500 customer (the name of the customer was supposed to be revealed in August), and it should be easy to see why MULN is one of the EV stocks to avoid.

On the date of publication, Larry Ramer 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.