Issues like slowing growth, high cash burn, and shareholder dilution will likely lead to further losses for these 3 EV stocks to avoid
As vehicle electrification continues to fall out of favor as a popular investing trend, it’s well worth figuring out what are the top EV stocks to avoid.
Even if EV proliferation is set to continue, and the industry is well-positioned to experience a resurgence in growth once interest rates come back down, it’s questionable whether all names in the space are poised to make a comeback.
U.S. market leaders like Tesla (NASDAQ:TSLA) could stage one via the launch of new, lower-priced vehicle models. Smaller American EV upstarts may struggle with issues such as poor funding and building a customer base.
Over in China, the world’s largest EV market, a similar dynamic may play out. Established China-based players BYD (OTCMKTS:BYDDF) could benefit the most if economic headwinds in the world’s largest EV market fade, while smaller competitors struggle to re-enter the growth fast lane/make progress towards profitability.
With this in mind, let’s look at 3 EV stocks to avoid, two that are U.S.-based, and one based in China, and see why steering clear of each of them is your best course of action.
Back in 2020, Fisker (NYSE:FSR) was one of the most promising EV startups. Today, the company appears more likely to experience the same fate as its namesake founder’s prior EV venture than it does at becoming a “Tesla killer.”
So, what caused FSR stock to tumble into the EV stock junkyard? Production/demand headwinds, for one. Reported braking issues with its vehicles have been another issue.
As InvestorPlace’s Eddie Pan reported Jan. 22, Fisker has embraced shareholder dilution to shore up its balance sheet, another major negative for shares.
Fisker may implement a sweeping change in strategy to turn things around, but only time will tell whether this will make a difference. In the meantime, err on the side of caution.
Barring the release of improved financial results, assume FSR will, much like other struggling EV startups such as Mullen Automotive (NASDAQ:MULN), continue to spiral lower.
China-based Nio (NYSE:NIO) is another high-profile EV upstart, also once touted as a possible future competitive threat to Tesla, that has thus far failed to live up to high expectations.
After experiencing a high level of growth from 2019 through 2021, China’s “Zero Covid” lockdowns brought growth to a halt in 2022.
After the lockdowns, there were high hopes that a Chinese economic recovery would spark a growth resurgence. Said high hopes helped NIO stock experience a short-lived partial recovery during the middle of last year. Since then, however, shares have come tumbling down.
Delivery numbers have lagged that of competitors. The China EV price war has negatively affected margins, resulting in continued high cash burn.
Nio is also depending on dilutive capital raises to sustain operations/fund uncertain global expansion efforts. With little end in sight to these issues, NIO is another of the EV stocks to avoid.
Rivian Automotive (RIVN)
As I have argued previously, Rivian Automotive (NASDAQ:RIVN) may be in better shape than other EV startups, but that doesn’t make it a great buy among EV stocks.
The electric pickup truck and van manufacturer, in contrast to rivals like Lucid Group (NASDAQ:LCID), has been relatively more successful at producing and selling its vehicles.
However, leveling up after this initial success could prove challenging for Rivian. Last month, Wolfe Research’s Rod Lache downgraded RIVN stock, citing concerns that the company could soon experience a growth slowdown, until 2025, when Rivian’s lower-priced R2 models are expected to debut.
Adding to Lache’s argument, not only could a growth slowdown limit RIVN’s near-term upside. A lack of growth may mean continued high losses, which may increase the chances Rivian needs to raise more capital. Such dilution concerns could drive shares lower, even as RIVN has already declined by nearly 35% year-to-date.
On the date of publication, Thomas Niel 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.