The demand for electric vehicles (EVs) is falling. Consumers aren’t buying them at the same torrid pace as before, even with manufacturer price cuts and government subsidies. Although a record number of EVs were sold, the rate of increase is falling. So then, which is the best EV stock?
A CarGurus (NASDAQ:CARG) report found EV inventories surged 506% from last year, with the average number of days sitting on dealer lots climbing to 82 days compared to 64 days for gas-powered vehicles.
The automotive research and shopping website says the primary cause is that EVs are too expensive for our high-interest rate environment. Where the average fossil-fuel-driven car costs $46,077, an EV goes for $63,878, or 39% more. CarGurus says it will cost you $277 per month more to buy an EV than it would an internal combustion engine car.
It doesn’t help that used EV prices are falling, too. It’s putting pressure on the new EV industry, which is now delaying bringing models to market. General Motors (NYSE:GM) just said it is pushing back further EV development until 2025 due to “evolving EV demand”, while Ford (NYSE:F) paused $12 billion in new EV investments.
That doesn’t mean investors should abandon the sector. It means you must be more selective in the EV stocks you buy. What follows is the single best EV stock you should buy and two you should run away from.
The Top EV Stock to Buy: Toyota Motors (TM)
Amid early EV hype, GM made the silly promise to stop making gas-powered vehicles by 2035. Ford didn’t go quite so far. It only wanted half its fleet to be powered by something other than fossil fuels. As we see, both are walking back those commitments.
Toyota (NYSE:TM), on the other hand, chose not to put all its eggs in one basket. It invested across the full spectrum of energy options: fossil fuels and EVs, especially in its hybrid vehicles. Toyota avoided the hard stumbles other EV makers took by focusing primarily on hybrid options. It’s clear Toyota made the right choice.
Third quarter profit more than doubled year over year to $9.5 billion due in part to strong consumer demand for hybrids globally. Conventional hybrid sales jumped 41% from last year to about 888,000 vehicles, while plug-in hybrids soared almost 90% from the same period a year ago to about 39,000. It also raised full-year guidance, hiked its dividend, and increased its share buyback program.
Toyota did dive into full-electric vehicles. In May, it established a new unit called BEV Factory that will produce both battery EVs and the batteries themselves. Toyota aims to become a major EV battery stock in the process and looks to make 1.5 million BEVs by 2026.
With the stock trading at heavily discounted prices, it makes buying Toyota a no-brainer EV stock decision.
EV Stock to Flee No. 1: ChargePoint Holdings (CHPT)
Not a vehicle manufacturer, ChargePoint Holdings (NYSE:CHPT) is developing the charging station network that will be needed by EV drivers to “fill up” on their travels. It notes that “Since 2007, ChargePoint has been committed to making it easy for businesses and drivers to go electric with one of the largest EV charging networks and a comprehensive portfolio of charging solutions.” Yet, primarily selling the actual chargers is not a very compelling business. Think of it not as selling the gas cars use but the gas pumps. It’s a tough business to make a profit in.
Declining EV demand and EV manufacturers pushing back new models caused ChargePoint’s sales to collapse. Previously it guided towards a third-quarter revenue range of $150 million to $165 million. Now says sales will only be between $108 million and $113 million. Adjusted gross margins will significantly narrow.
It’s a highly competitive market, so rival Blink Charging (NASDAQ:BLNK) finds itself in the same spot—shares of both companies obliterated shareholder value. ChargePoint stock is down 85% over the past year, while Blink is off 75%.
Worse, ChargePoint just had to raise cash and got $232 million in the process. Although it extended the maturity of its loans, the cost doubled from 3.5% to 7%. Meanwhile, the conversion price on the stock was cut in half. It means ChargePoint will be paying out twice as much as before to service the debt, and shareholders could see significant dilution. ChargePoint stock is simply one you should run away from.
EV Stock to Flee No. 2: Nikola (NKLA)
It seems hard to believe that a penny stock like Nikola (NASDAQ:NKLA) has a near $1 billion valuation. Yet here we are as the electric truck maker continues to wallow in disaster. The stock still has legions of fans, but I’m here to warn investors away.
Years after promising to deliver thousands of BEVs a year, Nikola only delivered 79 trucks in 2023. Battery fires caused it to halt sales and recall the vehicles it had sold. It produced zero trucks in the third quarter. The costs decimated its finances. Net losses exploded to $425 million, about double the figure from the previous year. It is not expected to begin shipping vehicles again until sometime in the first quarter of 2024.
Nikola is on its fourth CEO in as many years. The EV truck maker’s CFO also recently resigned after taking on the role less than a year ago. In the meantime, Nikola has aggressively issued stock to remain afloat, but at a cost of severely diluting shareholders. That’s how we have a near billion-dollar valuation.
Now that Tesla (NASDAQ:TSLA) has just introduced its Cybertruck, it may be even more difficult for Nikola to survive. Admittedly, I don’t see the Cybertruck changing the market yet, but there’s much more excitement around it than anything Nikola does. It needs to keep cutting costs, which will impact the business in the future. It means it doesn’t matter how many shares you can control by taking a flier on the stock as it trades for pennies on the dollar. They’ll all be worth the same if and when the company crashes. Flee as far away from Nikola as possible.
On the date of publication, Rich Duprey 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.
