The global shift towards electric vehicles (or EVs) isn’t slowing down. But that’s hardly a reason to roll the dice with overhyped EV stocks. Plenty of companies stand to benefit from the vehicle electrification trend. Others, not so much.
If successful in their respective “EV pivots,” incumbent automakers like Ford (NYSE:F) could become more profitable, and perhaps even move up to richer valuations. Meanwhile, analysts are skeptical that EV market leader Tesla (NASDAQ:TSLA) can maintain its current lofty valuation. Yet if Tesla is successful at reducing vehicle prices and production costs, the resultant growth could enable it to sustain its current stock price and move to even higher prices.
Unfortunately, while incumbents and early-movers are well-positioned for the “EV revolution,” the same can’t be said for most of the EV upstarts. Burning through cash, failing to make sufficient production progress, and still overvalued despite plunging during the 2022 bear market, forget about a comeback for overhyped EV stocks, such as these seven. Further declines are far more likely.
Faraday Future (FFIE)
Faraday Future (NASDAQ:FFIE) is one of many EV startups that went public during the 2020/2021 bull market, via a special purpose acquisition company (or SPAC) merger. Shares initially spiked post-deSPACing.
Over the past two years, though, the popping of the “EV bubble,” coupled with production delays, have pushed FFIE stock down to just 24 cents per share. That’s around a 97.6% decline from its original SPAC price of $10 per share. Even worse, it’s not like shares are poised to make even a partial recovery.
While continuing to raise capital, this additional funding comes at the price of heavy shareholder dilution. The impact of this dilution isn’t yet reflected in Faraday’s stock price. However, that could soon change. Once a planned reverse stock split is completed, it will become easier to short FFIE once again. This in turn could result in another high double-digit price decline.
Canoo (GOEV)
As I discussed back in March, Canoo (NASDAQ:GOEV) managed to build up a multi-billion dollar backlog. This made it appear more promising than other EV “also-rans.” That said, this small, undercapitalized EV upstart has had to raise additional outside capital, in order to turn these orders into actual sales. The dilution resulting from these capital raises has weighed heavily on GOEV stock. Just like FFIE, this is EV SPAC stock down by more than 90% from its original SPAC price.
However, not only is Canoo vulnerable to more price declines, but the high cash burn is likely to continue. As a Seeking Alpha commentator argued earlier this month, an eventual Chapter 11 bankruptcy filing from the company is within the realm of possibility. Given its high wipeout risk, GOEV is one of the overhyped EV stocks to avoid.
Lucid Group (LCID)
I’m very skeptical of would-be “Tesla killer” Lucid Group’s (NASDAQ:LCID) prospects. With shares in this luxury EV maker trading at rock-bottom prices compared to its “EV bubble” highs, clearly, the market holds a similar view.
Even so, plenty of speculators continue to dabble in LCID stock. Largely, due to the view that continued backing from the company’s majority shareholder (Saudi Arabia’s Public Investment Fund, or PIF) will enable it to keep plugging away at its efforts to scale into a major EV manufacturer.
PIF’s support is keeping the lights on, but remember that the dilution from this will water down potential upside returns. That’s assuming, of course, that Lucid overcomes the numerous challenges affecting it today. As Louis Navellier recently argued, given its inability to gain traction in the U.S. market, it’s doubtful the company’s latest desperate move (entering the Chinese EV market) will help spark a comeback.
Nio (NIO)
Down significantly from its past highs, Nio (NYSE:NIO) is one of the most overhyped EV stocks. While shares in this China-based EV maker may be far cheaper today than they were in 2021, that doesn’t mean the stock is a bargain. At the moment, NIO is priced as if a much-hyped re-acceleration of growth will happen between now and Dec. However, as I’ve pointed out, however, Nio’s weak monthly sales through the first half of the year call this into question. That’s not all.
Even if the company partially lives up to forecasts calling for it to materially increase vehicle sales relative to 2022, the company pretty much needs to lean on slashing prices to achieve this goal. This may result in higher-than-expected losses, which could lead to another de-rating for NIO shares.
Nikola (NKLA)
Nikola (NASDAQ:NKLA), one of the original EV SPACs, languished in the stock market junkyard for most of 2023. However, throughout June, speculators jumped back into NKLA in a big way. Between June 7 and June 15, NKLA stock zoomed by as much as three-fold, from 60 cents to (briefly) $1.83 per share. But, more recently, shares have fallen back towards earth, yet shares have still held onto a good amount of these “to the moon” gains. Still, don’t expect “buying the dip” here to be a profitable move.
Mostly, because Nikola is fighting to survive. Pausing production as it scrambles to raise more cash, after Lordstown Motors’ (NASDAQ:RIDE) recent bankruptcy announcement, Nikola could be the next high-profile EV name to go the Chapter 11 route. As one of the most risky stocks in this sector, staying away completely is clearly the better choice.
Mullen Automotive (MULN)
Sure, it may now be more accurate to say that Mullen Automotive (NASDAQ:MULN) was once one of the most overhyped EV stocks. However, some speculators may be still buying into the hype this EV maker is still trying to gin up, through press releases touting its progress.
Put simply, take any news out of this company with a grain of salt. This holds especially true when it comes to Mullen’s recent announcement that it has enough on hand to sustain operations for the next year. According to InvestorPlace’s Thomas Yeung, the company may not have enough cash on hand to fulfill its largest purchase order, much less keep the lights on through mid-2024. With this, assume Mullen will once again resort to dilutive capital raises to replenish its cash reserves. This points to even more declines ahead for MULN stock (down by 99.6% over the past twelve months).
Rivian Automotive (RIVN)
Although down massively from its 2021 IPO price of $78 per share, Rivian Automotive (NASDAQ:RIVN) is still considered by many to be one of the more promising electric vehicle investments. In the eyes of its supporters, RIVN stock still has comeback potential. Rivian bulls believe that the company will be able to significantly increase sales, as past production issues subside. Mostly, because of its supposed large order backlog. Yet while this may be enough for shares to grow into their current valuation, will it justify a move to higher prices? Not so fast.
Why? Namely, high competition. Incumbent automakers like Ford and General Motors (NYSE:GM), now launching their own electric SUV, truck, and van offerings, may limit how much market share Rivian ultimately captures. While Rivian may survive, the jury’s still out on whether it will thrive. Until then, consider RIVN overhyped, and a stock to avoid.
On the date of publication, Thomas Niel 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.
