Lordstown Motors’ (NASDAQ:RIDE) troubles reached a boiling point yesterday. The troubled automaker has been watching shares decline for months. But on June 27, the company filed for bankruptcy and announced a lawsuit against its manufacturing partner Foxconn (OTCMKTS:HNHPF). This news sent RIDE stock into a tailspin, falling by as much as 50% in just a few hours. Given how much the electric vehicle (EV) producer has struggled throughout recent months, none of this is surprising. However, Lordstown isn’t the only company in the space in danger of going bust. Several other small-cap EV stocks are in similar positions, even as demand for EVs continues to grow.
It is a perilous time for smaller companies that may prove unable to hold their own against industry leaders. InvestorPlace’s Luke Lango predicts a “great EV consolidation,” in which many smaller automakers will be absorbed or will collapse. As he states:
“[Similar] to the gas-powered boom, the EV boom of the 2020s and ‘30s will comprise a few top players. They’ll differentiate themselves from the pack in terms of some major value-add, whether it be cost, design, performance, or branding. Those titans will attract all the consumer demand and reap all the rewards of the EV Revolution. And they’ll squeeze out the other 90% of companies in the industry.”
If that’s how the market is going to progress, the time to start selling less stable EV stocks is now. Investors wondering which ones to offload should look for companies that have failed to garner any serious momentum throughout the EV boom and find themselves running out of money. That goes double for any company that fits the criteria of a meme stock. Plenty of companies could fit into that category, but let’s dive deeper into the most pressing EV stocks that investors should ditch before they go the way of Lordstown, veering off the road and into Chapter 11.
EV Stocks to Sell: Mullen Automotive ()
There hasn’t been a reason to bet on Mullen Automotive (NASDAQ:MULN) in months, and there certainly isn’t now. A favorite among retail investors, MULN stock has stayed relevant primarily due to the r/WallStreetBets crowd, even after falling 85% in just the past month. That alone is reason enough for investors to dump their Mullen shares and run the other way. But there is an alarmingly lost list of other factors that also support the highly bearish case against the struggling EV producer. Mullen recently lost its spot on the Russell 2000 Index, but that’s hardly where its troubles began. The company has issued statements with misleading information, and while they’ve since corrected it, it’s clear that MULN stock is beyond redemption.
InvestorPlace markets analyst Thomas Yeung recently speculated that Mullen likely doesn’t have enough cash to survive. He also notes that the troubled company is making promises that will be very difficult to keep and will likely force it into breach of contract with buyers. In May 2023, Yeung also noted that Mullen’s 10-Q report hinted that it could be close to bankruptcy due to highly questionable finances. All this strongly suggests that Mullen is an unstable meme stock that investors should sell before it falls even further, and Louis Navellier’s “game over” prediction comes to pass.
Nikola Corp (NKLA)
When it comes to struggling EV stocks that investors should avoid, Nikola (NASDAQ:NKLA) is just a small step above Mullen and Lordstown. Also a troubled automaker, it has been struggling since founder and former CEO Trevor Milton faced charges of securities fraud. Since then, the company hasn’t seen much improvement, though, indicating that its problems run much deeper than faulty leadership. As InvestorPlace contributor Ian Bezek reports:
“[It] remains unclear if Nikola will ever become a viable business. That’s because the firm is rapidly running out of money, and desperately needs to sell more stock to raise funds. However, shareholders, for whatever reason, have not voted in sufficient amounts to permit the company to sell more stock. Without it, Nikola may face potential insolvency in the not-too-distant future.”
On top of that, NKLA stock boasts a dangerously low Altman Z-Score of -3.85, putting it well into what Gurufocus calls the destress zones. As it stands, Nikola also looks like a likely candidate for bankruptcy. Even if it can somehow manage to hang out, there’s little chance of it demonstrating any real growth. That makes it a clear choice among EV stocks to sell.
EV Stocks to Sell: Canoo (GOEV)
Like the first two EV stocks on this list, Canoo (NASDAQ:GOEV) is a struggling automaker that is quickly running out of cash to burn. This southern California-based startup started with high hopes riding on it. However, it has only failed to live up to investor expectations, and last month brought reports that the company had significant doubts regarding its ability to meet financial obligations. This type of cash crunch would worry investors in a stable company, but GOEV is a penny stock that hasn’t traded above $1 per share since February 2023. With that in mind, it’s not hard to see why institutional investors have been rushing to offload Canoo shares in large quantities recently.
Given all this, it’s unsurprising that Gurufocus would also flag GOEV as an EV stock in trouble. The platform only features an Altman Z2-Score for Canoo, but it is dangerously low, a -15.56 as of this writing. This is perfectly in line with everything we know about this struggling company. Canoo is as likely a candidate for bankruptcy as Nikola, if not more when we consider its dangerously low cash reserves. Both EV stocks are up today, but investors shouldn’t be fooled into thinking that a turnaround is coming for either.
On the date of publication, Samuel O’Brient did not have (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.