3 EV Stocks on the Brink of a Major Crash: Sell Before It’s Too Late
A March 2024 article on CNBC suggested the EV euphoria is dead. This view was backed by the fact that automakers have been scaling back on their EV expansion plans. Undoubtedly, the industry is suffering from factors that include competition, macroeconomic headwinds, and slower adoption by consumers. However, it’s too early to believe it’s the end of the road for EVs.
In the coming years, the industry will see consolidation and the potential failure of multiple EV companies. The ones that survive will emerge stronger and continue to grow through the decade. A balanced view would, therefore, be to buy quality EV stocks at a discount. At the same time, look at EV stocks to sell that represent companies that might not survive.
This column focuses on EV stocks to sell before they crash and burn. These EV companies will continue to suffer from cash burns, and with continued funding requirements, the stock will trend lower.
Lucid Group (LCID)
Lucid Group (NASDAQ:LCID) was once touted as a Tesla (NASDAQ:TSLA) competitor. However, Lucid has disappointed on multiple fronts, and the stock has been punished. The stock has corrected 67% in the last 12 months, and I expect further downside.
In March, Lucid announced a $1 billion investment from Ayar Third Investment Company. This boosted sentiments. However, it’s still a few years before Lucid can turn cash flow positive. Sustained cash burn implies further equity dilution. This will translate into a downside for LCID stock.
It’s worth noting that for Q1 2024, Lucid produced 1,728 vehicles and delivered 1,967 vehicles. These numbers are significantly low when scaling up and turning adjusted EBITDA positive.
Of course, Lucid ended Q4 2023 with a liquidity buffer of $4.78 billion. The recent infusion adds to the cash position. However, it’s unlikely that continued cash infusion will save the company amidst intense competition and a broad-based slowdown in EV sales.
Polestar Automotive (PSNY)
Polestar Automotive (NASDAQ:PSNY) stock was listed in June 2022 at $13. The decline has been sustained from those levels, and PSNY stock currently trades at $1.6. I remain pessimistic about the stock, and the downtrend will likely sustain.
It’s worth noting that the company received external funding of $950 million in February. This financing comes from 12 international banks. Further, Polestar reported a cash buffer of $770 million as of December 2023. Therefore, liquidity will not be an issue in the coming quarters.
The real challenge for Polestar is to achieve a cash flow break-even that’s targeted for 2025. The bank financing would imply debt servicing cost, and if sales are sluggish, credit metrics will worsen. The company still expects additional external funding of $350 million to achieve the cash flow break-even target.
On the positive side, new models are likely to support deliveries growth. However, it remains to be seen if costs can be curbed when the company is looking for aggressive deliveries growth.
ChargePoint Holdings (CHPT)
Among EV charging stocks, ChargePoint (NYSE:CHPT) is a sell even after a correction of 82% in the last 12 months. Business metrics have been discouraging, and ChargePoint is unlikely to survive the competition.
The first point to note is that the EV charging industry is still at an early growth stage. Most EV charging companies have been reporting steady or stellar revenue growth. For Q4 2023, Chargepoint reported revenue of $115.8 million, which was lower by 24% on a year-on-year basis. At the same time, the company’s gross margin contracted by 300 basis points to 19%. The decline in revenue coupled with margin compression is a big negative.
It’s worth mentioning that ChargePoint has reaffirmed its guidance for positive non-GAAP Adjusted EBITDA by January 2025. While that’s a few quarters away, the markets remain unimpressed. With a strong presence in North America and 16 European countries, growth has disappointed. Expect CHPT stock to remain weak and avoid it even from a trading perspective.
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.
