Whenever positive industry tailwinds last for the long term, multiple new players enter the industry. This includes start-ups and existing companies that diversify. However, over time, fewer players remain. The industry cycles a phase of consolidation of potential company failures coupled with acquisitions.
This pattern holds true for the electric vehicle industry. In the next 12 to 24 months, certain EV stocks will plummet while others surge higher. A clear differentiation between leaders, laggards, and losers will come into view.
Let’s focus on the bearish outlook of three EV stocks to sell that are unlikely to create value. Even from a speculation perspective, these EV stocks look uninteresting.
Fisker (FSR)
Fisker (NYSE:FSR) stock has been resilient for year-to-date (YTD) 2023 with a downside of 7%. Currently bearish on FSR stock, I do expect a sharp correction in 2024. Notably, the short interest in the stock as a percentage of free-float is significant at 44%.
In a recent news, Fisker announced the target to deliver 300 vehicles per day in the U.S. and Europe. The company has manufactured 5,000 Fisker Ocean SUVs and already delivered to 900 customers. While this seems encouraging, it may be best to wait for quarterly numbers before taking a plunge.
Most concerning is the competition’s track record. Polestar Automotive (NASDAQ:PSNY) is on track to deliver 60,000 to 70,000 vehicles in 2023. However, PSNY stock has been trending lower as EBITDA losses sustain and further equity dilution is likely. Also, Lucid Group (NASDAQ:LCID) has been struggling with cash burn.
Fisker could fall upon similar concerns in the upcoming quarters. Potential equity dilution would translate into a sharp correction. Currently, the FSR has a low cash buffer of $521.8 million. Further, it remains to be seen if Fisker can meet its ambitious deliveries target.
Electrameccanica Vehicles (SOLO)
Electrameccanica Vehicles (NASDAQ:SOLO) is another stock to completely avoid, currently trading near 70 cents.
The first reason to avoid the stock is an intensely competitive EV market. Frankly, Electrameccanica is unlikely to survive a few years down the line. Further, SOLO launched a single-seater EV, which was the company’s differentiating factor. Sadly, it failed in that endeavor.
Additionally, the company has declined a merger with Tevva, a company focused on commercial EVs. Therefore, SOLO’s vision has completely changed with this proposed deal.
The merged entity is targeting a turnover of $1.3 to $1.5 billion by 2028. It’s likely that cash burn will sustain in the next few years and would imply further dilution of equity. With the commercial EV segment being equally competitive, the outlook is uncertain.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) stock has been decimated after a correction of 99% in the last 12 months. The massive decline does not imply that MULN stock is undervalued. With the stock’s recovery unlikely, Mullen is unattractive even as a speculative bet.
Mullen Automotive has weak fundamentals with a first-time revenue of $308,000. Importantly, cost of sales was 81% of the revenue. Importantly, the cost of R&D is significant and has been increasing over the quarters. Unfortunately, the company hasn’t been able to translate its innovation into growth.
Currently, the company has cash and equivalents of $214 million. With cash burn sustaining, massive equity dilution is likely. Further, share repurchase in this scenario seems to be among the worst decisions.
In a recent news, Mullen has commenced delivery of Class 3 EV Cab Chassis Trucks. However, this event didn’t have any positive impact on the stock. It’s clear that investors prefer to stay away from this falling knife.
On the date of publication, Faisal Humayun did not hold (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.
