Over the last decade, numerous electric vehicle (EV) companies have come and not-yet-gone. Some were hyped as Tesla (NASDAQ:TSLA) killers, while others claimed they’d carve their own niche. Yet many remain highly overvalued and speculative, with too few sales and excessively poor margins to justify their current stock price. The EV stock crash of the post-pandemic era has wiped out stock prices, but there may still be more room to fall.
The EV stocks that are certified losers are those whose ideas far outstripped their abilities. Many EV losers still struggle to produce cars at scale or with profit. They may continue to hype up new cars, features, and promises, but at this point, there are some EV stocks with no hope of delivering.
That isn’t to say all EV stocks are dead in the water. The market for electric vehicles will likely continue to grow as governments support EVs to meet their climate goals. But don’t get fooled into thinking the government’s money can paper over company flaws.
Buying the right EV stocks could create generational wealth, but knowing what to drop is also important. Here are three EV stocks you may want to sell.
Nikola (NKLA)
Like its more famous cousin, Nikola (NASDAQ:NKLA) was named after Nikola Tesla. But this is one company the famous inventor might now want as his namesake. After all, the company might never live down that time it faked an electric semi truck by rolling it down a hill. Although the previous CEO Trevor Milton is out, his replacement probably can’t save the business.
Nikola’s biggest problems start and end with their financial situation. Its Q1 2023 report shows the company had a net loss of $169 million for the quarter, with revenue of just $11 million. The business also had just $121 million in cash and cash equivalents at the end of that quarter. With little money left, it’s no wonder Nikola wanted to sell stock to stay afloat, but shareholders torpedoed that proposal as well. Nikola is sinking fast with no life vest or rescue boat in sight.
Nikola wanted to sell shares to increase their production of vehicles. Yet even if the company grew revenue by an absurd degree, it probably couldn’t help them. On a pure cost-of-revenue basis, they spend $42 million on truck sales to sell $10 million worth of trucks. Given that, it’s difficult to see how they could ever build enough to save them from the business’ current position.
I’d even argue the company has negative value in the minds of most customers who only know of it from the downhill controversy. Nikola is definitely one of the EV stocks to sell.
Rivian (RIVN)
Rivian (NASDAQ:RIVN), once promoted as a “Tesla Killer,” is an electric vehicle company that could go toe to toe with the best and win. But it hasn’t lived up to its reputation, and now it may never get the chance.
Rivian’s Q1 2023 earnings report highlights that fact. Revenue skyrocketed year over year from $95 million to $661 million. Unfortunately, the cost of revenue grew even faster, increasing the company’s gross loss from $502 million to $535 million. With a net loss of $1.6 billion for the quarter, Rivian may not have enough runway to reach a profit, even with cash and cash equivalents of $11.2 billion. Rivian has yet to prove it can create an operating profit. And even if it does, that’s still a far cry from a net profit. With consistently high net losses, it’s a wonder if Rivian can survive long enough to become profitable.
Rivian’s best hope is to reach economies of scale big enough to drive down costs relative to its revenue. But hopes to expand production are also moving slowly. Rivian has been hit by lawsuits against its plant in Georgia. And while these cases may not stop the plant, they may still slow it down. Add to that its repeated need to recall vehicles, and Rivian may be circling the drain.
With costs increasing faster than revenue, Rivian may have no path to profit. Its future could include burning the cash pile, followed by an ignoble exit from the EV market — a sad but common fate for EV stocks.
Nio (NIO)
Unlike the other two companies on this list, Nio’s (NYSE:NIO) problems are as much geopolitical as economic. Nio is a Chinese company, and as the American-Chinese trade war has heated up, Chinese companies have lost access to American tax credits. Very few companies qualify, and Nio isn’t on the list. And because the tax credit favors using metals mined in the U.S. or a Free Trade Agreement partner, Nio is unlikely to be added anytime soon.
Besides its American problems, Nio is also having issues at home. Nio has had to cut prices and end its free battery swap service in China. The battery swaps were a quick way for consumers to get a recharge, but costs were mounting, and cuts had to happen.
Nio’s 2022 annual report showed revenue of $7.1 billion and a net loss of $2.1 billion for the year. Revenue has grown year over year, but costs have grown even faster. Nio is not looking to be on the path to profit, and with $2.8 billion in cash and cash equivalents, it doesn’t have a long runway to get profitable.
Ultimately Nio may be a casualty of politics. Perhaps it could survive on subsidies from its home country, but that help could make the vehicles uncompetitive in the American market, greatly limiting its reach. And with that, its hopes of being a fully international EV stock are likely in the dust. The company may not go bankrupt, but as an also-ran, you’ll want to sell the stock to buy something better.
On the date of publication, John Blankenhorn 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.
