Recent concerns about the EV market’s downturn, driven by slowing sales and price drops, may be premature. The market’s evolution, with new players and changing consumer behavior, suggests that traditional valuation methods may apply to this sector to a greater degree. Indeed, many investors may be better off focusing on the growth of competition, emerging business opportunities, and evolving customer needs.
Despite signs of trouble in the EV market, some key players reported significant growth. Four major U.S. EV makers saw sales rise over 50% year-over-year, with Ford’s (NYSE:F) EV sales up 86%. This suggests that while established companies may face challenges, innovation and new market entrants drive growth and create opportunities.
The EV industry holds significant long-term growth potential, but not all EV stocks are profitable. This year’s market correction revealed that many EV stocks are underperforming. While opportunities exist among oversold stocks, investors should avoid these EV stocks to sell, as t hey all have weak fundamentals and are unsuitable for long-term investment.
Tesla (TSLA)
After disappointing the market and investors in its Q2 report, Tesla (NASDAQ:TSLA) investors may question what to do. The company’s expansion into the competitive Chinese market may distract from its core EV business. Tesla’s Chinese sales saw a 15% increase, selling 74,117 units in July. However, this growth lagged far behind rivals such as BYD (OTCMKTS:BYDDF), which reported a 31% increase. As far as international growth is concerned, Tesla’s overall trajectory is slowing meaningfully.
Investors recently experienced the worst trading day in 19 months, and Tesla was a major contributor. This is due to the company’s disappointing numbers, and a clear revaluation of the stock by investors. On a 45% plunge in profitability, TSLA stock dumped more than 12% on the news. And while this stock has recovered some of its losses, this stock could have much, much further to decline from here should the trend continue.
In mid-July, Tesla’s AI plans hyped up its investors, but some may also be concerned that this shift may push the company to avoid focusing on its EV business. The AI hype has since faded, and its recent fiscal results shed light on Tesla’s struggling EV business. In my view, Tesla’s size and market capitalization simply position this EV stock as one that has further to fall than the rest. For those concerned about valuations in what could be a slowing recessionary economy, this is a stock to consider selling right now.
Lucid Motors (LCID)
Lucid Group (NASDAQ:LCID) saw an impressive 11% surge in value as the company reported Q2 sales of $200 million. This quarter, the company handily beat top-line estimates. However, the company also noted a loss of 34 cents per share on the earnings front. Continued cash burn tied to Lucid’s production ramp-up remains the primary concern for investors.
Additionally, many are watching the company’s production numbers closely, with Lucid’s 2024 production goal of 9,000 vehicles in sight.
Lucid surged once more in July, increasing 30%. It reported Q2 production and deliveries, which provided an optimistic outlook for the company. However, the company’s reliance on Saudi Arabia’s PIF still stirs concern for some investors. The PIF’s investment strategy prioritizes influence over returns, which can further complicate Lucid’s long-term outlook.
Lucid also continues to experience problems tied to its especially high cash burn rates. The company reported a negative cash flow of $714 million since December 2020. Despite some improvement, its profitability remains far below peers’, with a distressing -197% gross margin and -65% return on equity.
Nio (NIO)
Nio (NYSE:NIO) stock has fallen 55% year-to-date, underperforming Chinese rivals Xpeng (NASDAQ:XPEV) and Li Auto (NASDAQ:LI). Although the company reported some strong delivery numbers in July, Nio has plummeted 90% from its all-time high in 2021. Due to economic concerns, the stock also lags behind market indexes, particularly the S&P 500. However, the encouraging part is Nio isn’t alone, with many large-cap stocks and EV stocks seeing similar moves.
While a 60% drop in stock may seem enticing, it’s crucial to consider the poor fundamentals driving this decline. Only certain stocks will thrive in the evolving EV industry; others might fail. Nio, with its weak balance sheet and high cash burn, faces survival challenges. Li Auto, by contrast, shifted focus from sheer sales volume to user value and efficiency, which seems a wiser strategy. Despite Nio’s Q2 2024 delivery growth, ongoing cash burn and potential equity dilution keep its stock depressed.
In other Nio news, Nio’s CEO, William Li, announced that the company will not pursue robotaxi development, despite competitors like Xpeng and Tesla exploring it. Li dismissed the robotaxi model as unexciting, focusing instead on using smart driving tech to enhance safety and reduce driver fatigue. For those looking for a catalyst or reason to buy this stock, unfortunately, I don’t see much on this front for now.
On the date of publication, Chris MacDonald 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.
On the date of publication, the responsible editor held a LONG position in LI.
