As a new year begins, the state of play for investors in the electric vehicle (EV) sector is still bright in the long term. It’s the short-term you should be concerned about. That’s why it’s important to identify EV stocks to avoid or sell in January.
You can believe EVs will be the future of transportation and still acknowledge the sector still carries significant risk for investors. The same sentiment was true of dot-com stocks over 20 years ago. The failure of an individual business doesn’t negate the concept.
By now, many investors are getting tired of hearing this, but manufacturing EVs is a capital-intensive business. Tesla (NASDAQ:TSLA) has been a remarkable example of an EV company built from the ground up. But there’s only one Tesla — and only one Elon Musk.
It wasn’t going to take long before the legacy automakers got involved in the EV space. Plus, consumers are rediscovering the allure of hybrid vehicles. That’s made an already crowded field even more competitive. Lower interest rates may help, but they may be too little, too late for some companies. With that in mind, here are three EV stocks to avoid.
Rivian (RIVN)
Rivian (NASDAQ:RIVN) is a success story in the EV sector. On January 3, 2024, Rivian issued an update on 2023 production and deliveries. The company delivered 57,232 electric vehicles for the year. That was better than its own forecast of 54,000 vehicles. And the 17,541 vehicles it produced in the fourth quarter was 7.5% higher than in the prior quarter.
So, why am I putting RIVN stock on a list of EV stocks to avoid? Because in the EV market, you have to pay close attention to both production and deliveries. It’s the delivery number that tells you how many consumers bought a vehicle, not just made a deposit. And for the fourth quarter, Rivian only delivered 13,972 vehicles.
The concern analysts like Goldman Sachs (NYSE:GS) are expressing is that Rivan may have to cut prices to move its inventory. That will dig into the company’s gross margins and add credibility to speculation that Rivan may not be profitable until at least 2030.
An additional concern is a software recall on 7,800 vehicles manufactured in 2021 and 2022. While the recall is certainly a lesser concern, the timing is unfortunate for shareholders.
RIVN stock was a great investment for patient investors in 2023. But it’s hard to ignore the obvious risk in the delivery numbers. Put this in the category of a stock that won’t burn, but is still likely to crash in the short term. Rivian reports earnings in late February. If you sell now, that may be a good time to reassess your decision.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) was a popular meme stock in 2023. Unfortunately, investor enthusiasm wasn’t rewarded in the price action in the stock which dropped over 99% in 2023. Nevertheless, as of this writing, MULN stock is trading at over $14 a share, helped by the third reverse stock split the company issued in 2023.
The latest reverse stock split was done to keep Mullen in compliance with Nasdaq requirements. That’s all well and good, but CEO David Michery said the company will have to raise additional cash to get through 2024.
Being delisted is far worse than a reverse stock split. However, investors do have to consider their shares are likely not finished being diluted. Mullen continues to push forward and recently achieved the milestone of manufacturing its 100th Class 3 cab chassis electric truck. The company has a standing order for 1,000 of its vehicles. At full production, the company expects to produce 3,000 vehicles per year.
However, production isn’t the same as deliveries. And right now, the pre-revenue company needs a lot more of the latter.
Electrameccanica Vehicles (SOLO)
Electrameccanica Vehicles (NASDAQ:SOLO) is another of the EV stocks to avoid in 2024. SOLO stock is down 50% in the last 12 months, and there’s little reason to believe the maker of three-wheel single-seat EVs can soon turn around that negative momentum.
To be fair, the company is trying to remedy its current situation via a merger. However, to date, it hasn’t found a partner. In December, Electrameccanica Vehicles terminated its merger agreement with Tevva Motors Limited. The company cited “multiple incurable breaches of the agreement by Tevva” in making the announcement.
The urgency of this situation comes from the fact that, as of September 2023, Electrameccanica had $73 million of cash on its balance sheet with no debt. However, in the 12 months prior, the company burned through $74 million. With the company generating negligible revenue, an infusion of cash is desperately needed.
If the company can’t find a dance partner soon, a reverse stock split is almost inevitable, as the stock has been trading below $1 a share for nearly a year.
On the date of publication, Chris Markoch 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.
