Challenges like competition and slowing consumer adoption persist with electric vehicles (EVs). Finding top EV picks in this market isn’t the game it once was. With a rising tide seemingly lifting all boats, investors can to throw darts at a board and be successful.
More industry consolidation is likely, with some EV companies now showing signs of failing. I think this trend will continue, with smaller cash-burning EV companies forced toward bankruptcy or a path to being acquired.
Despite acknowledging the EV market’s long-term potential, investors also may note that recent quarters have been challenging. Declining demand, reduced government backing and a complex macro environment intensify competition.
Let’s examine three EV picks that once may have been top choices for investors. But, I now think they could have more downside than upside in this current market.
Tesla (TSLA)
Recently, Tesla (NASDAQ:TSLA) stock hit a new 52-week low after receiving various downgrades due to key headwinds. CEO Elon Musk’s focus shift to the robotaxi program over the cheaper next-generation vehicle is a negative signal for investors. Additionally, the company’s recent round of layoffs, intensive price-cutting actions (which are picking up) and waning demand are hurting this stock’s investment thesis across the board.
Thus, it should be no surprise to many investors that Deutsche Bank (NYSE:DB) analyst Emmanuel Rosner downgraded Tesla to a “hold” rating from buy. He cites a likely delay in the $25,000 Model 2 and a change in the company’s strategic priorities.
Now, Tesla’s future hinges on achieving full driverless autonomy, a complex challenge noted by Rosner. He highlights a shift to robotaxis as “thesis-changing,” foreseeing a transition in ownership base. Moreover, investors are concerned because the stock hit its 52-week low recently. This is a momentum stock that has been driven mostly by upside optimism in recent years. A shift in this narrative is very bad for such a stock. And, we’re seeing what that looks like on the downside.
On top of that bad news, Tesla also recalled 4,000 units of its Cybertrucks due to concerns about the truck’s accelerator pedals. The recall affects vehicles produced between Nov. 13, 2023, and April 4, where the pedal could dislodge and become trapped. This comes amid a series of setbacks, including layoffs and a stock price decline, raising concerns among analysts.
Lucid Group (LCID)
Once seen as a Tesla challenger, Lucid Motors (NASDAQ:LCID) faces financial turmoil. Its losses total $6.7 billion since 2021, and no profitability is in sight until at least 2026. A recent debt funding round valued shares at just $3.60, signaling significant financial strain for the once high-flying EV maker.
Although LCID stock has seen a drastic decline so far in 2024, experts remain skeptical about the stocks’ outlook. Increased competition and volatility in this sector are hurting demand for LCID, which has fallen toward the $2 level in recent days. Keep in mind, this was a stock that once traded well above $50 per share, on multiple occasions.
The company’s recent offering, the 2024 Lucid Air Grand Touring, has attracted some attention due to its enhanced range of charging. Lucid’s Chief Executive Officer (CEO) Peter Rawlinson sees potential in this model, emphasizing its efficiency and longevity.
However, investors remain cautious on this name, and for good reason. Questions persist over Lucid’s ability to raise more capital to fund its growth plans. In a time of waning EV demand (particularly at the higher end of the market), it could spell trouble for LCID in future quarters. This is a stock I think investors need to be very careful with, particularly for those trying to time a bottom in this name.
Rivian Automotive (RIVN)
Third on the list of EV stocks to sell is Rivian Automotive (NASDAQ:RIVN). On April 18, the company announced it will be making more job cuts in 2024, reducing 1% of them to trim costs. Shares saw a 3.4% increase this week. However, they quickly dropped as soon as the announcement was made. The company described the decision as necessary to achieve gross margin positivity by year-end, focusing the cuts on business support staff.
It was only in February that Rivian made some job cuts by 10%, and investors did not see these as a good sign for the company. Before 2023 ended, the company reported they had employed over 16,000 people. Yet, due to low EV demand, they had to trim costs, which included doing workforce layoffs. To achieve this, it will bring production in-house, renegotiate supply contracts and upgrade its production line. Additionally, it plans to produce smaller R2 SUVs at its existing U.S. factory to expedite deliveries and save over $2 billion.
Ultimately, the pessimistic outlook on Rivian stock revolves around its lack of control and diversification in mobility platforms. Being solely focused on EVs poses risks, especially if industry leaders face challenges. Thus, investors should avoid Rivian until the industry’s direction becomes more precise.
On the date of publication, Chris MacDonald 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.