Parts shortages have delayed the electric vehicle revolution. REE Automotive (NASDAQ:REE) is one of many casualties, and REE stock is down 46% year-to-date.
REE doesn’t make cars. It offers two crucial design elements that act as a platform for electric car designers.
The REEBoard is a modular system for holding the battery and other key components. The REEcorner is a system for holding drivetrains, steering, and braking within a wheel well.
But you can’t sell a platform for electric cars if no one is making them. REE says it has $300 million in liquidity to wait that out. It recently got a small grant from the U.K. government to create a “center for excellence” there.
But until production contracts are signed, and production begins, this is a pre-revenue company.
A Bad Year for EV Stock
Wall Street no longer likes pre-revenue companies, especially when it comes to electric cars. The hope that surrounded the sector a year ago has dissipated, and with it the sector’s stock valuations.
Fisker (NYSE:FSR), whose contract manufacturer Magna International (NYSE:MGA) has a collaboration agreement with REE, is selling for less than half what it did at its peak in February. So are other pre-production electric car companies like Lucid Group (NASDAQ:LCID), Lordstown Motors (NASDAQ:RIDE), Workhorse Group (NASDAQ:WKHS) and Canoo (NASDAQ:GOEV). Technology outfits associated with the space, like Luminar Technologies (NASDAQ:LAZR), have also been cut in half.
Meanwhile, gas-powered companies like General Motors (NYSE:GM) are reporting huge profits. But even these stocks are having a tough time as the reality of long-term chip shortages bites. GM stock is down by 16% since mid-June.
You can’t have a revolution if you can’t get the parts.
Analyst Optimism for REE Stock
There remain analysts pounding the table for REE stock.
B Riley Securities launched coverage in August with a “buy” rating with a price target of $20/share. REE opened for trade Sept. 14 at under $6/share, a market cap of $1.7 billion.
Frost & Sullivan has called REE its “EV Platform Company of the Year” for the innovation behind the design of REEBoard and REEcorner. The technology can be used to create a wide variety of cars, from sports cars to SUVs to simple people movers. All manufacturers would have to create, and sell, would be the body and electronics.
But again, no parts, no revolution. REE came public in July through a Special Purpose Acquisition Company (SPAC) sponsored by 10X Capital, a venture company based in the new World Trade Center. Thus it has been lumped into the huge pile of SPAC failures. The CEO and COO of 10X recently gave support to the stock through the purchase of $2 million in additional shares. It hasn’t helped.
Four analysts at Tipranks covering REE, and three call it a buy. Their average price target is $13.75, more than twice where it’s now trading.
The Bottom Line on REE Stock
REE is a pure speculation. The company seems to have enough capital to get into 2023. But like everyone else in the industry it’s a prisoner of supply chain woes beyond its control.
While western companies remain moribund, meanwhile, China continues to build huge electric car factories. It could soon build more than the U.S. and Western Europe combined. That could make Chinese designs the world standard and knock companies like REE out of the game before they get started.
That’s the risk you take if you buy REE here. Until shortages like the one affecting chips abate, the stock is going nowhere. If management can hold things together, and backers don’t lose their nerve, however, you could have a winner two years from now.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.