If you're looking at EV stocks, be prepared for a long-term outlook
Subscribers to Chart of the Week received this commentary on Sunday, February 23.
The electric vehicle (EV) sector is under fire once again. Last Wednesday, it hosted its latest Chapter 11 bankruptcy filing from Arizona-based Nikola (NKLA). Failing to secure more investment funding, a 1-for-30 stock split in June, a barren EV semi-truck market, and the inability to shake the multiple felony convictions of founder Trevor Milton, all combined to send the company into an unrecoverable turmoil. The company now plans to liquidate its $500 million to $1 billion in assets and liabilities, and now represents nothing more than a penny stock.
Nikola’s filing hardly comes as a surprise, with many sector peers suffering similar ailments with demand, production, and larger rival companies who are also putting a hat into the EV ring. More pressing are the potential ramifications of impending President Trump tariffs that could hinder EV battery supply. This could be a hit to the already delicate profit margins for certain models, leaving EVs lacking federal support, quite the conundrum for a fledgling component of the auto industry. Even the view for non-EV auto is grim, with 25% steel and aluminum tariffs taunting the demise of more parts makers, growing further the potential for bankruptcy within the sector.
Nikola’s filing comes eight months after peer Fisker (formerly FSR) made its own Chapter 11 claim and almost two years after Lordstown Motors’ filing in June 2023. Cashflow and insurmountable debt amid a dry demand market pushed the equities beyond repair, suggesting that even as some names in the sector ride the back of advances in Big Tech, EV may not be the wisest choice for shorter-term traders.
Larger auto manufacturers such as Ford Motor Co (NYSE:F) are not exempt from the struggles, the stock already slipping into red ink for 2025 after a 7.5% post-earnings bear gap earlier this month after a lackluster earnings report . Back in August F declared its intentions to invest $1.9 billion into EV, specifically smaller vehicles to (attempt to) pave the path to profitability. Unlike EV startups that may have been destined to fail like Fisker and Nikola, Ford’s stature brought increased legitimacy to the EV industry and their involvement was indicative the auto industry was regarding EVs beyond an "insurance policy." Per Chief Operating Officer Marin Gjaja, "we have to play there in order to complete with the entrants that are coming."
From a short-term perspective, Ford’s chart performance is mediocre at best, with overhead pressure from a downtrend line that stems from the stock’s late-July peak. The formerly supportive $11 mark has also been a ceiling, capping all breakout attempts between late August and November.
To play devil’s advocate, let’s look at the long-term performance of the automobile maker. In the monthly chart below, going back to 1987, the red line exhibits F’s current trading level around $9.30 as mild, matching the site of its early 1990’s highs and floor of support 2015-2018. This is also close to the site of trading when F began its original decent into EV, back in 2012.
Some EV-focused names have (so far) been able to avoid complete financial ruin, including Lucid Group Inc (NASDAQ:LCID), which sits comfortably of the back of support from an affiliate of the Saudi Arabia Public Investment Fund. Since its SPAC merger in 2021, the fund has poured $6.4 billion into the equity. LCID holds a 12.7% nine-month lead and $9.37 billion market cap, with a healthy three-year sales growth of 451%.
Also maintaining its name alongside an even meatier $13.4 billion market cap and three-year sales growth of 1,557%, is Rivian Automotive Inc (NASDAQ:RIVN), with a leg up from its deal with Amazon.com (AMZN) and a few well-regarded models. RIVN is enjoying an almost 30% nine-month gain. In other words, both may end up being a smarter long-term investment, for those not looking to make quick cash.
It's also worth noting Rivian’s post-close fourth-quarter beat. The company topped revenue estimates and came in with a smaller-than-expected quarterly loss. Investors quickly brushed this aside, however, focusing on a grim EV delivery forecast for 2025 -- Rivian saying it expects to deliver fewer EVs than last year, as demand remains uncertain. This sent the stock tumbling 4.5%, to its worst daily drop in a month. While the equity’s drop seems to have cast a shadow on small EV startups compared to big names like Tesla (TSLA), it could be quite the opposite. In fact, both LCID and RIVN may end up being a smarter long-term investment, for those not looking to make quick cash.
Despite the technical troubles, there are some positives. Charging and battery supply has been a huge hurdle for the efficiency of EV, and just last week electric truck manufacturer Xos (XOS) revealed that its Xos Hub, a portable energy storage system and DC fast charger, has been added to the General Services Administration (GSA). Pointed toward the reduction of expenses within federal agencies, and the use of the GSA for expedited and streamlined purchases within the government, this major milestone is one of many keeping the EV sector glowing. In response to the news, XOS saw its largest daily percentage gain on record, doubling its stock price in one session.
Many companies that host charging stations around the U.S. have also been hit hard, including Blink (BLNK), though EVgo (EVGO) has managed to skirt a long-term selloff, now trading at levels last seen in mid-July. With a 92% rise in revenue for the third quarter, its growth rate has remained uncapped, leaving plenty of potential for those looking to take a dive.
It's hard to say whether EV is the way to go for investors, amid a tumultuous global trade and tariff environment, but with Big Tech making strides and a slow growth in sales more than evident, a long-term trader may be the right fit for the sector that tends to -- for better or worse -- stay anything but quiet. In fact, taking a closer looks at long-term options like LEAPS, may be the best place to start for the more stable names such as RIVN.