There is little doubt about the bull story for electric vehicles. With global penetration still at a low level, some of the best EV companies will continue to grow at a healthy pace. Given the bright outlook for the industry, competition has intensified in the last few years. This means there are some EV stocks to sell right now.
From an investment perspective, growing competition implies that investors need to be increasingly careful about EV stock selection. Currently, there are several EV stocks to sell that represent companies unlikely to grow or survive. This column focuses on the EV stocks investors need to avoid as they will continue to erode value.
Talking about competition, the number of available electric car models reached 500 in 2022. This is more than double the option available in 2018. The story is similar for commercial EVs with some big players entering this segment.
Let’s discuss three EV stocks to sell before they erode further value.
Arrival (ARVL)
In the last few quarters, I have talked about Arrival (NASDAQ:ARVL) among the EV stocks to sell. I would reiterate my call with the outlook looking pessimistic. It was recently reported that the company has hired Alvarez & Marsal as an adviser for potential insolvency.
Arrival had ambitious plans for multiple micro-factories globally. The concept was interesting, but the execution has been poor. The launch of electric vans has been delayed on a sustained basis and cash burn remains significant.
In April, the company signed an agreement with Kensington Capital Acquisition Corp V (NYSE:KCGI) for a business combination. This agreement was expected to infuse liquidity. However, the business combination was terminated in July. Given the company’s struggle to raise cash, it seems likely that bankruptcy is on the cards.
The best-case scenario would be Arrival getting a capital infusion with a big equity dilution. That would also translate into a deep correction from current levels.
Electrameccanica Vehicles (SOLO)
Electrameccanica Vehicles (NASDAQ:SOLO) stock was on a sustained downtrend. The correction was triggered by the company’s single-seater EV model failing to gain sales delivery traction.
However, in the last trading session, SOLO stock surged by 30%. The rally was on the back of the company’s announcement to merge with Tevva. The latter is involved in the manufacture of medium-and-heavy-duty electric commercial vehicles. On the merger, Electrameccanica shareholders will own 23.5% of the combined company.
I believe that the current rally is a good opportunity to exit. There are two important points to note. First, the commercial EV industry has intense competition. The merger does not imply value creation.
Further, the proposed company is targeting revenue of $1.3 to $1.5 billion by 2028. Growth is likely to be moderate and cash burn will sustain for an extended period. I therefore believe that the initial excitement will be overshadowed by concerns and SOLO stock is likely to trend lower.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) stock has crashed by 99% in the last 12 months. I would not be surprised if the stock plunged by another 50% from current levels. It’s therefore in my list of top EV stocks to sell.
Mullen seems to be another EV story where execution has been dismal. The company has gone through several rounds of fundraising and there is little to show in terms of major outcome.
As of July, Mullen reported cash and equivalents of $200 million. However, with EV production just starting, cash burn will sustain. Given the current market valuation, massive equity dilution will be required to raise further financing.
Importantly, it remains to be seen if the company’s vehicles gain delivery traction. Overall, I believe that Mullen is unlikely to survive in a highly competitive industry. With better investment options in the EV industry, MULN stock is likely to remain in a downtrend.
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.
