Whenever a sector has multi-year tailwinds, there are several new entrants. With the fear of missing out, investors take a plunge in several stocks in the sector and a euphoric rally ensues. However, what follows is a period of correction and consolidation. It also becomes increasingly clear that there will be leaders and laggards in the sector. Furthermore, there will be companies that go bust among the laggards. All this perfectly fits the events in the electric vehicle (EV) sector in the last few years.
There are some potential multi-bagger EV stocks to buy and hold through 2030. At the same time, there are EV stocks to sell or completely avoid even after a deep correction. This column discusses three EV stocks to sell as they represent fundamentally weak companies that will struggle to gain growth traction.
It’s not always necessary that the product or idea is bad. Competition can eat-up good businesses as they face scaling-up challenges. With this overview, let’s discuss three EV stocks to sell as I believe that these stocks will remain in a downtrend.
Lucid Group (LCID)
Lucid Group (NASDAQ:LCID) stock has trended higher by 26% in the last one month. However, the stock has witnessed a big correction of 56% in the last 12 months. I believe that the rally can be used as an opportunity to exit and invest in relatively better EV stocks.
The first point to note is that the company’s production and deliveries growth is yet to witness robust acceleration. For Q1 2023, Lucid produced and delivered 2,314 and 1,406 cars respectively. This is important as cash burn will sustain– at least through 2025 or 2026.
As of Q1 2023, Lucid reported a cash buffer of $4.1 billion. The company expects the cash buffer to fund operations through Q1 2024. Therefore, further dilution of equity is on the cards.
With Lucid planning to commence SUV production in 2024, it’s likely that expenses will increase. At the same time, global marketing and selling expenses are likely to be higher. I would therefore avoid LCID stock with better investment ideas where companies are delivering robust cash flows.
Arrival (ARVL)
Arrival (NASDAQ:ARVL) stock has plunged by 97% in the last 12 months. It might seem that the stock is deeply oversold. However, I believe that it’s among the top EV stocks to sell even at current levels.
A big reason to be bearish is the point that the management has disappointed in time-lines. The idea of micro-factories looked attractive. However, there are doubts if the business model is scalable. Further, the cash burn has been significant with the company still to have a commercial launch.
For now, the plan is to commence commercial production of its van in 2024. Even after initial deliveries, cash burn will sustain and Arrival will require equity infusion to survive. Given the stock price of $1.9, a massive dilution is on the cards if the funding is significant.
It’s also worth noting that Arrival has narrowed its focus to vans. Initially, the company was looking at production of buses and cars. This translates into revision of growth guidance for the next few years. As a result, ARVL stock appears unattractive and the company is unlikely to survive–amidst intense competition.
Electrameccanica Vehicles (SOLO)
Electrameccanica Vehicles (NASDAQ:SOLO) has corrected by 50% in the last 12 months. I would not be surprised with another 50% correction in the next few quarters.
Electrameccanica Vehicles started with the production and commercialization of a single-seater EV. An attractive point was a base selling price of $18,500. However, SOLO has received lukewarm response and is unlikely to be the growth driver for the company.
Recently, the company has also commissioned a manufacturing facility in Mesa, Arizona. Electrameccanica will be producing and assembling EVs for its own brand and for other manufacturers. The company is also working on its own “next-generation EV.” It remains to be seen if these steps deliver results.
However, it’s certain that robust revenue growth is unlikely anytime soon. Further, Electrameccanica will require funding and dilution of equity will translate into further correction in the stock.
On the date of publication, Faisal Humayun 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.
