Cenntro Has Significant Issues That Prevent it From Being a Buy

Cenntro (NASDAQ:CENN) has multiple strengths, including its cost-saving sales strategy and the fact that, unlike many companies in the electric vehicle (EV) space, it has generated meaningful revenue. At the same time, though, I do have some significant reservations about CENN stock.

Cenntro Electric Group (CENN) Unveils its iChassis Autonomous Driving Vehicle at CES 2022
Source: Cenntro Automotive

Specifically, considering that Cenntro has been in business for around nine years, it has not sold very many EVs. Further, its valuation, though not as excessive as a number of its peers in the EV sector, is not exactly a bargain either. Finally, I think that a new market segment, which the company entered last year, could be quite competitive.

I will explain more about these issues in the paragraphs below.

Cenntro’s Strengths

Cenntro manufactures “electric light- and medium-duty commercial vehicles,” also known as ECVs. One of the company’s key advantages is that it is using outsourcing to reduce its manufacturing costs. It does this by selling some of its EVs “in unassembled semi-knockdown vehicle kits […] for local assembly.” In other words, Cenntro sends its designs and parts to its partners in other nations, who then assemble the company’s EV, the Metro, and sell it. Cenntro describes the Metro, which is shown in this link, as a “light electric commercial vehicle designed for urban scenarios such as intracity delivery and similar services.”

Additionally, as Cenntro pointed out in its prospectus, this system allows resellers to mold the Metro to the wants and needs of their individual markets, enabling the automaker to avoid high research and development costs and high labor costs.

Another advantage for Cenntro is that there is relatively little competition in the “light electric commercial vehicle” market. Other EV market segments, especially luxury sedans and upper-scale SUVs, seem to be much more competitive. Many veteran automakers, including Volkswagen (OTC:VWAGY) and General Motors (NYSE:GM), along with a high number of younger companies, such as Tesla (NASDAQ:TSLA) and Lucid (NASDAQ:LCID), are concentrating on the latter market segments.

Moreover, Cenntro has managed to penetrate the world’s largest EV market, China. As of November, the company had sold about 1,300 units to companies in China.

Finally, on the valuation front, CENN Stock currently has a market capitalization of $349.9 million. That is much lower than the market capitalizations of many EV companies. If Cenntro can sell tens of thousands of EVs, the shares will probably prove to be undervalued at their current levels.

Cenntro’s Weaknesses

First and foremost, even though the automaker was founded back in 2013 and the Metro was already available five years ago, the company’s home page states that it has delivered “3,600+” vehicles. In November 2021, Cenntro reported that it had received an order for 2,000 EVs from a Japanese reseller.  Given that fact, however, that the company has been in business for around nine years and its flagship EV has been available for roughly five years, that is a relatively low number of deliveries.

That low number, in turn, makes me question how large the demand for the Metro actually is.

Additionally, in my research into Cenntro, I did not come across any big partnerships. So, it has a disadvantage compared to EV makers like Arrival (NASDAQ:ARVL), Ayro (NASDAQ:AYRO), Nikola (NASDAQ:NKLA), and Proterra (NASDAQ:PTRA), all of which have entered alliances with very large, established firms.

Finally, although the valuation of CENN stock is not nearly as expensive as some EV stocks, it is not exactly very cheap either.  Those looking for a very inexpensive EV company that, like Cenntro, is in the light commercial EV market, should consider Ayro. Ayro stock has a market capitalization of just $42 million. And, as of the end of the third quarter, it had $77.1 million of cash and total debt of just $1.1 million, Yahoo! Finance reports.

Additionally, the company recently reported that it had “record revenue and record unit deliveries of the Club Car Current,” its top EV, last quarter.

The Bottom Line on CENN Stock

Given its valuation and weaknesses, CENN stock is a “show-me” stock at this point. I would wait for it to drop much further or for the company to prove itself much more before buying its shares.

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On the date of publication, Larry Ramer was long ARVL stock, PLUG stock, and AYRO stock. 

Larry Ramer has conducted research and written articles on U.S. stocks for 14 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. 


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