In 2024, investors are wondering if artificial intelligence (AI) stocks are the latest bubble that is doomed to burst. But right now, FOMO reigns supreme.
And as investors shift money into AI stocks, they’re pulling money out of other sectors such as electric vehicles. Whether you like EV stocks or not, now is not the time to play hero ball.
EV stocks have been in a bubble of their own since 2021. At that time, many EV companies entered the market with a prototype and a plan. And, many speculative investors came along for the ride. But higher interest rates have made the cost of capital more expensive. Consequently, many of these companies now need cash.
When one factors in inflation and consumer concerns about range anxiety, you can understand why AI stocks look like a better investment.
Will the outlook appear better in five or ten years? Most likely, yes, but several companies may not be around then. The industry is likely in the early stages of a multi-year consolidation. That means the time for speculation is over. Let’s examine three EV stocks to sell for the AI shift.
Fisker (FSR)
Whenever a company issues a going concern warning, investors should pay close attention.
That’s exactly what has happened to Fisker (NYSE:FSR). The company experienced delays getting its flagship Ocean model into production. And when the company reported its quarterly earnings on February 29, 2024, chief executive officer Henrik Fisker conveyed the going concern warning to analysts and investors.
In an effort to weather this storm, Fisker is taking several steps. These include shifting from its direct sales model to a dealer model, cutting staff, and reducing capex spending. But even with those measures in place, Fisker warned that 2024 would be a difficult year.
FSR stock is trading for 41 cents a share as of the market close on March 6, 2024. Speculative traders, armed with the hope that may come from a possible $400 million cash injection from Nissan (OTCMKTS:NSANY), may feel Fisker is worth a YOLO trade.
But if you’re trying to make money in the EV sector, hope isn’t a strategy. Therefore, any deal that Nissan may make is likely to come with strings that won’t care about existing shareholders.
Rivian (RIVN)
Next, Rivian Automotive (NASDAQ:RIVN) has been undertaking aggressive cost-cutting measures as it tries to deliver its electric trucks at scale. Unfortunately, that hasn’t stopped the company from missing delivery targets and diluting RIVN stock in an effort to raise cash.
Like Fisker, Rivian reported its quarterly earnings in February. And, the results were mixed. The company posted a surprise revenue beat but missed on earnings.
By itself, that’s not a reason to sell. More concerning is Rivian lowering its production guidance to just 57,000 vehicles. Furthermore, in order to hit that number, the company will have to burn through much of the cash it has on hand. So let’s be clear, they’re spending their most precious resource, cash, to deliver fewer cars.
A lower cost model could help, but the company isn’t expected to deliver that until 2026. Unfortunately, at its current pace, Rivian may not be around in its current state when that time comes.
Mullen Automotive (MULN)
It seems fitting that Mullen Automotive (NASDAQ:MULN) would be on a list of EV stocks to sell for the AI shift. Everything about the Mullen story in 2023 seemed a bit larger than life. The company is attempting to carve out a niche in electric cargo vans and trucks. But, this compelling story may not have a happy ending.
If you viewed MULN stock at face value, you would see a share price of over $6. But you don’t have to look too far to see that stock price is the product of three reverse stock splits that have been conducted in the last 12 months.
Let that sink in. The company has conducted a 1-for-9, 1-for-25, and in December 2023, a 1-for-100 reverse stock split. And, after the first two splits, Mullen still couldn’t stay above the Nasdaq requirement to stay listed.
In that sense, I guess you can take comfort that the third time has been the charm. At least for now. But that’s a lot of dilution without a clear path forward. Of course, some traders may be hoping for a short squeeze. If that’s how you like to trade, there may be something here. Otherwise, Mullen is one to avoid.
On the date of publication, Chris Markoch did not have (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.
