There seems to be increasing skepticism related to the downfall of the EV industry. That’s the nature of market sentiment that moves from one extreme to another. Looking back at 2021 and a large part of 2022, the EV sector was among the hottest. Currently, most of the discussion involves the EV stocks to avoid.
The reality is somewhere in between. There are EV companies that will continue to grow and create value, even with global EV adoption happening at a slower than expected pace. On the other hand, there are likely to be losers from the industry that will perish on the back of intense competition.
From a stock price perspective, the survivors will be back with a bigger rally in the next bull market. However, this column focuses on EV stocks to avoid as a long-term investment. There might be trading or speculative opportunities in the EV stocks discussed. However, I would avoid these ideas from the perspective of buying and holding.
Let’s discuss the reasons for being bearish on these stocks.
Lucid Group (LCID)
Lucid Group (NASDAQ:LCID) stock has plunged almost 70% in the last 12 months. While there can potentially be trading opportunities, it’s among the EV stocks to avoid as an investment.
Lucid Group has continued to disappoint in terms of production and deliveries growth. For Q1 2024, Lucid produced and delivered 1,728 and 1,967 vehicles, respectively. Without a doubt, these numbers are not good enough to achieve operating-level profit. Lucid has a long way to go before the company can stem the cash burn.
To put things into perspective, Lucid reported an operating loss of $2.6 billion for 2022. Last year, the company’s operating loss widened to $3.1 billion. Even with a strong liquidity profile, sustained cash burn implies further equity dilution or leveraging.
This is not a great balance sheet scenario when the EV industry faces a slowdown. Further, intense competition will impact deliveries and vehicle pricing. I believe Lucid will find it difficult to survive in the next 24 to 36 months.
Polestar Automotive (PSNY)
Polestar Automotive (NASDAQ:PSNY) is another EV stock in a sustained correction mode. Like LCID stock, I believe the PSNY stock might provide trading opportunities. However, it’s not among the EV names positioned to survive and grow in the coming years.
Cash burn has been a challenge for Polestar. The company secured a $1 billion financing and estimates another $350 million of funding requirements before cash flow break-even in 2025.
The important point is that PSNY stock has remained downtrend even after the cash flow break-even guidance. This indicates that the markets believe Polestar might struggle to achieve the target.
For Q1 2024, Polestar delivered 7,200 cars. This included 1,200 deliveries of the recently launched Polestar 4. With two more models (Polestar 5 and 6) in the pipeline, deliveries growth will likely accelerate. However, vehicle margins are likely to remain depressed amid competition.
ChargePoint Holdings (CHPT)
The EV charging industry has ample headroom for growth in the U.S. and Europe beyond the current decade. However, ChargePoint (NYSE:CHPT) is unlikely to be a winner as the company struggles with growth acceleration and cash burn.
To put things into perspective, ChargePoint reported Q4 2024 revenue of $115.8 million. On a year-on-year basis, revenue declined by 24%. This is a big negative, with significant penetration impending in the EV charging infrastructure industry.
I must add that for Q1 2025, ChargePoint has guided for a year-on-year revenue decline of 19%. Therefore, the trend is likely to remain negative and CHPT stock might continue to trend lower.
Another point to note is that the company’s operating loss widened for the financial year 2024 on a year-on-year basis. The decline in revenue, coupled with the widening of losses, is a red flag, and I am not surprised that CHPT stock has plunged by over 80% in the last 12 months.
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.
