Not all investments promise a smooth ride as the autonomous vehicle market speeds towards the future. Despite the groundbreaking advancements and surging interest in AV technology, some stocks in this futuristic arena show signs of trouble and could be heading for a crash.

The autonomous vehicle market is projected to grow significantly, expanding at a CAGR of 13.5% from 2024 to 2032. Key factors supporting this market growth include technological advancements in autonomous vehicle systems, heightened emphasis on safety and efficiency, and supportive governmental policies and investments in infrastructure. However, the market also faces high development costs and safety and security concerns.

As investors look to navigate this volatile sector, identifying which stocks to avoid becomes crucial to protect their portfolios from significant downturns. In the spirit of a cautious investment strategy, three autonomous vehicle stocks appear particularly vulnerable and might be worth selling off in August before potential declines intensify.

Nikola (NKLA)

Nikola (NASDAQ:NKLA) is an ambitious zero-emission vehicle startup. The company has faced several challenges lately, which are reflected in the company’s stock price, which has gone down 68% YTD (year-to-date).

Nikola’s Q1 earnings call highlighted the stark reality: achieving profitability is a distant goal, contingent on drastically scaled production, which remains impractical under current volumes. The company’s new strategy targets major North American customers with large fleets, but these plans may falter without sufficient hydrogen infrastructure or substantial volume.

Moreover, as of the end of Q1 2024, Nikola’s unrestricted cash stood at $345.6 million, down approximately $120 million from the previous quarter. The alarming cash burn rate suggests that increasing sales volumes under current operational inefficiencies could lead to even more significant financial drains.

While Nikola has made strides in delivering trucks, the underlying business model reveals profound challenges. The company’s go-to-market strategy revision and heavy reliance on future large-scale orders highlight the uncertainty and risk embedded in its operations. The lack of a robust hydrogen infrastructure concerns may deter potential large fleet customers.

Canoo (GOEV)

Canoo (NASDAQ:GOEV) aims to revolutionize the EV market with its unique designs and focus on commercial electric vehicles. However, the company has struggled to translate innovative ideas into sustainable success.

Canoo’s financial health has been a significant concern for investors. As of the latest reporting period, the company’s cash reserves are critically low, with just $9.6 million. In the face of these liquidity challenges, Canoo has relied heavily on dilutive financing to keep the wheels turning.

Despite the optimistic announcements of vehicle deals and partnerships, Canoo’s production output remains alarmingly low. The company has only produced a nominal number of vehicles, far below the levels needed to achieve economies of scale or make a meaningful impact in the competitive EV market. This lack of production capacity doubts Canoo’s ability to fulfill its order book and generate substantial revenue.

Moreover, the company faces stiff competition from more established automotive giants and other agile EV startups already beginning mass production and delivery. Canoo’s focus on niche markets like light commercial vehicles has not yielded the promised growth, leaving the company at a strategic crossroads.

XPeng (XPEV)

XPeng (NYSE:XPEV) is a prominent player in the electric vehicle market, particularly in China. The company is navigating a period of intense industry competition and internal financial challenges.

Despite XPeng’s reported increases in vehicle deliveries, translating these gains into stable financial growth has been challenging. The company’s revenues have not seen proportional growth with sales volumes, indicating issues with pricing strategy. As of the latest financial reports, XPeng continues to operate at a loss, with narrowing but persistent negative margins.

The Chinese EV market is fiercely competitive, with several well-established players. XPeng finds itself in a precarious position, continuously innovating and reducing prices to maintain its market share. This environment has led to a price war among manufacturers, eroding profit margins and making it difficult for companies like XPeng to achieve financial stability and growth.

The company’s foray into markets outside China requires substantial capital investment and exposes it to new regulatory and competitive challenges. Moreover, the eVTOL segment, while innovative, pushes the company into an untested market that may require years of investment before becoming financially viable.

On the date of publication, Mohammed Saqib 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.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.