Beware! 3 Auto Stocks Waving Massive Red Flags Right Now
Change seems to be the only constant in the ever-evolving landscape of the automotive industry. The sector is undergoing unparalleled shifts. This naturally brings to light certain auto stocks to sell in today’s market. The current volatility acts as a magnifying glass, pinpointing shares that will continue to shed value as the adversity compounds.
As investors, it’s imperative to pivot and strategize, avoiding automotive stocks with more hazards than rewards. Let’s remember the stock market’s tumultuous past, specifically last year. The rout offers a lesson in proactivity. Interestingly, all three stocks we’ll delve into are electric vehicle businesses, emphasizing the importance of shrewdness even in burgeoning sectors.
So, while the buzz might be about electrification, certain auto stocks in this charged market should be avoided.
Mullen Automotive (MULN)
Once a promising EV player, Mullen Automotive (NASDAQ:MULN) seems to be navigating a rocky road. MULN continues striving to regain investor trust following a series of disappointing decisions.
Despite its recent efforts to ignite a rally in its stock, including a $25 million share buyback, the company’s tumultuous past is hard to overlook. A dramatic 98% plummet in its share price over the past six months, combined with three reverse stock splits in a single year, paints a dire picture. Even a $63 million purchase order cannot mask the glaring vulnerabilities in its financials. Additionally, this is underscored by a concerning cash burn rate at a whopping $70 million in the first six months.
Q2 results reveal stark losses and zero sales. Therefore, concerns around Mullen’s operational prowess and fiscal sustainability have intensified. Its management’s optimistic outlook seems to be at odds with the widening gap between its operational costs and forecasted sales. Moreover, its August 1-for-9 reverse stock split attempt fizzled out rapidly, leaving the company’s trajectory uncertain at best.
In the rapidly evolving EV landscape, Canoo (NASDAQ:GOEV) is one such case that stands as a cautionary tale.
GOEV enjoyed a brief 35% surge in July, following an expanded partnership with the U.S. Department of Defense and an impressive delivery to NASA. Despite the sparked interest, the enterprise’s underlying financial health remains distressing.
With a concerning cash reserve of only $5 million at the end of the second quarter, against a staggering $62.3 million operational cash outflow, Canoo’s financial positioning remains in question. Despite securing a promising agreement with a renowned Fortune 100 company and raising $56.2 million, its financial runway remains remarkably short. Foreseen capital expenditures of $70 million to $100 million, alongside a projected EBITDA loss of up to $140 million, intensify these worries. Throw in the potential threat of a Nasdaq delisting, and Canoo’s road ahead appears fraught with financial potholes.
Investors need to navigate with heightened prudence effectively.
Lucid Group (LCID)
Lucid Group (NASDAQ:LCID) finds itself at a precarious juncture in the high-stakes world of luxury EVs as it effectively navigates a series of alarming setbacks. The brand is renowned for its popular Lucid Air models and the much-anticipated Lucid Gravity, a luxury electric SUV slated for a 2024 launch. However, it has faced a turbulent journey of late, losing more than 20% in the past six months.
Despite a 55% spike in Q2 revenue, a staggering net loss increase (tripling to $764 million) has cast a shadow of doubt over Lucid’s financial stability. With this alarming uptick in losses and deliveries of just 1,404 vehicles in the same quarter, analysts echo this sentiment of uncertainty.
Even as Baird’s Ben Kallo appreciates Lucid’s in-house technology, he points to a challenging near-term setup and high product prices that have restricted the brand to a niche market. True, Lucid does have ambitious plans to penetrate the fiercely competitive Chinese market.
But this further stirs the pot, with many fearing it could be a bridge too far given existing domestic challenges, including reduced production forecasts and missed analyst expectations.
On the date of publication, Muslim Farooque did not have (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