The Electric Vehicle Glut Deepens

This past Monday, Tesla, Inc. (TSLA) cut its prices on its Model Y SUVs in China once again.

The company announced that, effective immediately, the long-range model will now cost 299,900 yuan ($41,340) and the performance model will cost 349,900 ($48,200). That means a reduction of 4.5% and 3.8%, respectively.

Investors were not happy with the news, and, in turn, dragged Tesla shares down 1.2%.

Now, Tesla has slashed its prices multiple times this year in an effort to defend itself against competition as well as economic uncertainty. In January, Tesla first announced price cuts in both the United States and China (which effectively sent a “kill shot” out to the entire automotive industry).

It’s also curtailed its production in the third quarter.

During Tesla’s second-quarter earnings call, CEO Elon Musk stated:

We continue to target 1.8 million vehicle deliveries this year. Although, we expect that Q3 production will be a little bit down because we’ve got summer shutdowns for a lot of factory upgrades. So, just probably a slight decrease in production in Q3 for sort of global factory upgrades.

The reality is Tesla is facing an electric vehicle (EV) inventory problem… but it’s not the only one.

According to Car Gurus, there are 12,036 Ford Mach-es, 9,356 VW ID.4s, 5,805 Hyundai Ioniq 5s, 3,767 Nissan Ariyas, 3,706 Hyundai Ioniq 6s, 2,347 Ford F-150 Lightnings, 2,155 Audi e-trons, 2,055 Kia Niros, 1,617 Chevrolet Bolts and 1,018 Cadillac LYRIQs sitting on dealer lots.

In today’s Market 360, I want to dive into the details behind General Motors Company’s (GM) and Ford Motor Company’s (F) EV woes, and what this says about the EV sector.

And then, I’ll share why General Motors and Ford, as well as Tesla, should be avoided right now… and give an example of the type of stock you should own instead.

General Motors’ Issues

In July, General Motors announced that its second-quarter results were hindered by the recall of its Bolt EV to replace its LG battery packs – which incurred a $792 million charge.

Excluding the cost of the recall, GM posted strong sales and operating earnings. The average vehicle that GM sells now trades at around $52,000, up 3% for the first quarter. So, GM is moving to increasingly upscale with its vehicles.

Now, there is an interesting observation regarding GM’s transition to EVs…

Specifically, GM’s new Ultium platform is having an acute supplier problem, so its battery packs are being manually assembled. CEO Mary Barra called the situation with the Ultium platform supplier problem “disappointing” and that she has “personally been reviewing the lines.” Barra added that “we’ll get this behind us” and hopes the situation will be resolved by the end of the year.

In the meantime, GM has only delivered 49 Hummer EVs this year due to the Ultium platform manufacturing problems. GM also recently shut down the Bolt’s Orion manufacturing plant in Michigan to throttle up on the Equinox EV production in Mexico.

Ford Flounders

Ford recently acknowledged the lack of consumer excitement about the F-150 Lightning, which are sitting on dealer lots and being discounted. And its executives were quick to pivot and said they will be focusing on making many new hybrid models, which they hope consumers will be more likely to purchase.

A hybrid F-150 can offer the electric hookups for power tools and tailgating, but not have the “range anxiety” that may be hindering the F-150 Lightning sales. In the second quarter, Ford’s EV business lost $1.08 billion, so its EV business is not profitable at the present time.

Ford said that it expects its EV business to lose $4.5 billion in 2023 and lowered its EV production forecast to 600,000 per year, which it hopes to achieve sometime in 2024. Interestingly, Ford backed off of its previous goal of 2 million EVs per year in 2026, apparently due to lackluster consumer demand.

I should add that Ford restarted its Rouge Electric Vehicle Center in Michigan this week after a six-month shutdown for retooling and expansion. The Rouge facility can now make 150,000 F-150 Lightning models annually.

Ford also mentioned that recent price cuts stimulated sales of the F-150 Lightning, but whether or not there will be sufficient consumer demand for 150,000 F-150 Lightning models annually remains to be seen.

One of the problems that Ford has had is that most 150,000 F-150 Lightning buyers were not its regular F-150 customers. However, if Ford can convince some of its F-150 customers to switch to the F-150 Lightning, then it could easily sell 150,000 vehicles per year.

We shall see.

The Five Best Areas to Invest

With consumers losing interest in EVs, investors are also losing interest in Ford, General Motors and Tesla stocks. As you can see in the Report Card below, they earn low ratings for their Quantitative Grades, which means institutional buying pressure is dwindling. The companies earn a C-rating, or a Hold, overall, so they are not buys right now.

The fact is, there are really only five areas you can invest in right now:

Cloud computing
Artificial intelligence (AI)
Homebuilders
Oil refiners
Integrated energy.

Case in point: CVR Energy, Inc. (CVI). This refiner has a coking, medium-sour oil refinery, a complex oil refinery, more than 570 miles of owned, leased or joint venture pipelines, a crude oil gathering system and more than six million barrels of owned or leased crude storage capacity.

It also boasts strong fundamentals. In its second quarter, earnings came in at $1.64 per share. Analysts expected adjusted earnings of $1.21 per share, so CVR Energy posted a 36.4% earnings surprise. Second-quarter revenue was $2.2 billion, just shy of estimates for $2.25 billion.

Not only did earnings come in well, but this particular stock has a 5.47% dividend yield, and the analyst community has revised their estimates 87.7% higher in the past three months. So, another earnings surprise could be in the cards.

I should also add that as oil prices have bounced back, so has CVI. Since the beginning of July, crude oil prices have jumped about 15%, while shares of CVI have surged more than 17%. In comparison, the Dow is up about 0.5% and the S&P 500 and NASDAQ are down about 1.6% and 3.3%, respectively.

And as you can see in CVR Energy’s Report Card below, it holds a B-rating for its Quantitative Grade and a B-rating overall. So, it’s a much better buy.

The bottom line: If you want to make money right now, then you want to invest in the sweet spots of the economy… and those sweet spots do not include companies in the EV space.

Now, if you’re not sure where to find these stocks, then start with my Growth Investor service. My Growth Investor has two Buy Lists that are chock-full of stocks in the five best corners of the market and offer strong fundamentals.

To gain access to my Buy Lists now, join me today at Growth Investor. You’ll also get immediate access to all my Monthly Issues, Weekly Updates, Special Market Podcasts and Special Reports.

Click here to become a member of Growth Investor now.

Sincerely,