The automotive market is currently going through massive changes while dealing with supply chain woes and an economy on the verge of recession. So, it’s fairly easy to identify automotive stocks with troubles presently. And the current bear market makes it easy to identify shares that will continue to bleed out as negative factors mount.
That said, there are a few reasons the equities listed below are on this list. The pivot away from internal combustion engine vehicles continues, but at a decreased clip. Two out of the three stocks listed are EV makers. Further, indicators in China, the world’s largest electric vehicle market, are mixed. Lastly, cracks have emerged in the iBuying model, with one business remaining a cautionary tale.
With these factors in mind, here are the top auto stocks to sell now.
Auto Stocks to Sell: Li Auto (LI)
Li Auto (NASDAQ:LI) stock faces a few obvious issues. For one, it is a Chinese-listed American Depositary Receipt (ADR). That means it represents shares of a non-U.S. company held outside the country, in this case, China. So, political risk is evident.
LI stock’s peers, including Nio (NYSE:NIO) and Xpeng (NYSE:XPEV), suffer from the same issue. However, Li Auto is doing much worse on one important front: deliveries.
In August Li Auto reported that it delivered 4,571 vehicles. Not only was that down 52% from a year ago, but it was also a 56% decline from July. Both of Li Autos’ aforementioned peers performed better. In Xpeng’s case, August deliveries increased 33% but were 17% lower than those in July.
Nio saw deliveries increase 81.6% in August YOY, and actually reported a modest 6% increase in deliveries between July and August. That strongly implies that LI stock is one to avoid for any investors interested in playing the reopening in China via EV stocks.
Carvana (CVNA)
Carvana (NYSE:CVNA) was one of the success stories of the pandemic as its iBuying model really took off. The company had long been noted for its aggressive sales growth. That worked well in the lower-rate environments of past quarters and years. But as rates have gone up and used car demand has slowed, the narrative surrounding Carvana has shifted.
Macroeconomic forces have drastically affected the company’s fundamental picture. Sales declined in the most recent quarter, a first. And net losses reached $260 million, a massive shift from the $36 million profit a year earlier.
The company admitted that it misjudged demand in the face of rising interest rates. In response to management’s error, the company chose to lay off 12% of its workforce.
Investors shouldn’t reward Carvana for that misjudgment, especially those who are pro-worker. If the union slant isn’t your thing, then consider that it also misjudged the effect rising rates would have on demand for its car loans. That’s just bad business.
Auto Stocks to Sell: Lordstown Motors (RIDE)
Lordstown Motors (NASDAQ:RIDE) stock is simply one to avoid at all costs. It has been a drastic slide for what was once a very promising company. But times change, and that is reflected in prices that have slid more than 90% over the past year and a half.
Lordstown Motors is now a going concern. Company CFO Adam Kroll stated that his firm’s ability to stay in business was in doubt back in May. The company ended Q2 with a $236 million cash balance. It is currently aiming for Q4 deliveries of its light-duty fleet EVs, but that is contingent upon validation scheduled for Q3. Lordstown Motors also relies on Foxconn as its primary development partner.
RIDE stock currently trades for $2 which should be a strong warning to investors.
On the date of publication, Alex Sirois 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.
