No one doubts that electric vehicles are the next big shift. But not all companies who make them are created equally. In fact, it’s best to avoid plenty of EV stocks.
We’ve known for quite some time that EVs would be an integral part in the push toward net zero. And that’s meant plenty of EV makers have sprung up around the world.
Trouble is, there won’t be room for everyone at the table. We can also anticipate some duds falling off a cliff. But a clear path to profitability is key. If cash is tight, demand needs to be strong as an indication the company can make it.
However, the current economic conditions suggest carmakers of any kind could be in trouble, prompting some to sell EV stocks in July. While many people are keen to trim their carbon footprint, splashing out on an expensive new car isn’t going to be a top priority.
Shaky market plus tons of competition doesn’t bode well for EV makers that haven’t quite figured out how profit at scale. With that in mind, now’s a good time to dump risky EV stocks that may not make it through this period of instability.
Lucid (NASDAQ:LCID)
For investors who want to sell EV stocks in July, Lucid (NASDAQ:LCID) probably ranks toward the top of the list.
Lucid is a Saudi Arabian-backed startup that had promising growth prospects once upon a time. But the current market conditions have all but crushed the group’s potential. The most recent results showed a decline in production thanks to ongoing supply chain issues. At the same time, deliveries remained flat as a result of lackluster demand.
Lucid positioned itself as a luxury-car maker with its sedans starting just shy of $88,000. That puts the group squarely in Tesla’s market, and it’s struggling to compete. Many believe the company will need to trim its prices in order to prop up demand. But doing so would erode both margins and brand power.
In a bid to create new revenue streams, the group’s inked a deal with Aston Martin to license its EV technology. This is a strong move, but not necessarily a lifeline. Aston Martin is light-years behind in building electric offerings.
Nio (NYSE:NIO)
EV maker Nio (NYSE:NIO) is facing a difficult position because of China’s zero-Covid-19 policy over the past few years. It clearly put of a damper on its growth.
China is home to some of the riskier EV stocks, though there are many reasons that being a Chinese EV stock is an advantage. China’s air quality issues mean the country is a leader when it comes to EV adoption, so the home market is strong. The nation’s middle class is growing, so the addressable market has been steadily increasing.
Nio has seen its production growth start to falter and deliveries have been relatively flat for about a year. This disappointed investors who had seen Nio’s wide array of SUVs and sedans supporting strong production growth post-Covid.
While Chinese Covid-19 policy has eased, it’s still a risky place to operate. The zero-Covid strategy meaningfully damaged economic growth. No one knows whether similar restrictions could crop up again. Plus, the ongoing tension between the U.S. and China has many worried that Nio could eventually be delisted. This would only add another significant layer of risk.
Rivian (NASDAQ:RIVN)
For those looking to sell EV stocks in July, Rivian (NASDAQ:RIVN) should be somewhere near the top of the list.
Rivian is a classic example of an unsustainable business model that’s been buoyed by the era of cheap capital. In some cases, this easy access to cash can get a new business off the ground and put it in a position to stand on its own two feet. But as the economic cycle turns toward a more difficult era, Rivian isn’t quite there.
Rivian’s been plagued by supply chain issues that meant its production volume has fallen far short of estimates. But there are deeper issues as well. The company’s ambition was to rush out a host of different EV models, including a platform of lower-cost vehicles. While access to a ton of cash would have propelled this plan, the manufacturing know-how can only be earned over time.
Ultimately, Rivian is contending with a complex supply chain full of pitfalls. So it’s hard to imagine that as we head into a more challenging economic cycle that Rivian will have the continuing cash to burn.
On the date of publication, Marie Brodbeck 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.
