In light of the tremendous competition in the electric-vehicle space and SPI Energy’s (NASDAQ:SPI) lack of expertise in the sector, the recent surge of SPI Energy stock seems to be overdone.
The rally was triggered on Sept. 23 by the company’s announcement that it would launch a subsidiary called EdisonFuture, which will focus on making electric vehicles (EVs) and chargers.
On Oct. 15, SPI announced that EdisonFuture, which will be based in Silicon Valley, would partner with Chinese logistics-EV maker Shaanxi Tongjia. Under the deal, Shaanxi will give “parts and support” to EdisonFuture.
Tremendous Competition in the EV Sector
Of course, Tesla (NASDAQ:TSLA) dominates the U.S. EV market, but competition in the sector is heating up. General Motors (NYSE:GM) expects to launch 20 EVS within three years, including the Hummer and the Cadillac Lyriq. Also going full-bore into the EV market is Volkswagen (OTCMKTS:VWAGY), which is slated to be marketing five EVs by 2022. And Ford (NYSE:F) will soon launch the electric version of its Mustang, along with multiple plug-in hybrid vehicles.
Meanwhile, Fisker (NYSE:FSR), Nikola (NASDAQ:NKLA), Rivian, and Workhorse (NASDAQ:WKHS) are among the upstarts looking to unveil electric SUVs. And as the sector’s big heavyweight, Tesla will release its own SUV next year. At the same time, many other major automakers are dabbling in the EV space, launching one or two electric automobiles.
My sense is that the space is rapidly becoming a hyper-competitive, dog-eat-dog sector.
Competitor Struggles Are a Warning Sign
As I reported in a previous column, short-seller Fuzzy Panda “stated that [Workhorse’s] vehicles have malfunctioned on multiple occasions.” Among the problems cited by the firm, which is shorting WKHS stock, were a failed parking brake on a prototype and a prototype that unexpectedly ran out of power.
Another cautionary tale for the owners of SPI stock comes from Nikola. Apparently, the latter start-up found it too difficult to develop its own battery, as it made a tentative deal to use GM’s lithium battery system for its upcoming Badger SUV.
Based on this information about Workhorse and Nikola, it seems that developing EVs isn’t a walk in the park. As a result, I would not recommend investing in a company that is entering the EV sector without any apparent experience in automobiles and that has failed to make any deals to sell its EVs yet.
While SPI’s partnership with Shaanxi Tongjia is somewhat reassuring, SPI will likely still have to largely manage the development of its own EVs, since its EV subsidiary will be based in California, while Shaanxi’s headquarters are in China.
Evaluating SPI’s Other Businesses
I’m less worried about SPI’s EV charging business, since developing charging stations is probably more straightforward and less complicated than making EVs themselves, and there’s much less competition in the U.S. charging market. But still, SPI will be well behind two first-movers — ChargePoint and Blink Charging.
Finally, SPI’s flagship solar business is also in a very competitive, consolidating market. And the fact that its 2019 revenue only came in at $98 million indicates that its core business is not exactly setting the market on fire. Additionally, its 2019 operating income was -$14.48 million, suggesting that its core business is far from being profitable.
The Bottom Line on SPI Energy Stock
SPI is entering the very competitive EV market, which is only going to get tougher, without any apparent expertise or track record in the sector. The reported difficulties of Workhorse and Nikola indicate that could be a recipe for problems. As a result, I urge long-term investors to sell SPI Energy stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.