The best part of growth for the EV sector is still to come. By 2030, EVs are likely to represent more than 60% of vehicles sold globally. The number of EVs will expand to 350 million by the end of the decade. To put things into perspective, the number of EVs on the road in 2021 was 16.5 million. Even with this potential, there will be winners and losers from the industry. The column focuses on the EV stocks to sell before they erode further value.
It’s worth noting that last year was important for the sector. There were EV stocks that surged and some others declined. It was the market’s way of differentiating between the leaders and laggards. I expect a similar trend this year in an intensely competitive industry.
While there can be other laggards and value destroyers, I am focused on three EV stocks to avoid. These stocks represent companies with significant cash burn and no visibility of any significant improvements.
Let’s discuss the EV stocks to sell now.
Lucid Group (LCID)
Lucid Group (NASDAQ:LCID) has already been a massive destroyer of investor wealth. LCID stock traded in the mid-$50s in November 2021 and is now a penny stock. Even after the deep correction, the short interest in the stock is at 27%. I remain bearish on the fundamental front and it’s best to avoid the stock.
Lucid has disappointed on a continued basis when it comes to production and deliveries. Production delays and scaling-up of delivery numbers remain a concern in an intensely competitive EV market.
The second big concern is cash burn. For the first nine months of 2023, Lucid reported a $2.36 billion loss from operations. I don’t see Lucid delivering positive cash flows before 2027. This would imply a sustained period of leveraging or share dilution. As the stock trends lower, the dilution will be bigger for fundraising. This development will punish existing investors. LCID stock is among the top EV stocks to sell in a market where there are multiple attractive alternatives in the sector.
ChargePoint Holdings (CHPT)
Most emerging EV charging infrastructure stocks were in correction mode last year. While some EV charging companies will survive and grow, few others are likely to perish. In my view, ChargePoint (NYSE:CHPT) will continue to erode investor wealth.
There are two reasons to be bearish on ChargePoint from a fundamental perspective. First, smaller EV charging companies have faced cash burn, but revenue growth remains stellar. However, ChargePoint has disappointed even on that front.
For Q3 2023, the company reported revenue of $110 million, which was lower by 12% on a year-on-year basis. Revenue deceleration seems to be a concern, and it makes sense to wait and watch to see the trend in the coming quarters.
Further, for the first nine months of 2023, ChargePoint reported an operating loss of $357 million. Operating losses widened year-on-year. It’s a red flag for me if operating losses widen while revenue decelerates.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) stock is trading under $15 per share on the back of a reverse stock split. MULN stock has been a massive wealth destroyer and I don’t see any hopes of a reversal in trend.
To be realistic, I would steer clear of Mullen in a space where bigger commercial EV companies like Rivian Automotive(NASDAQ:RIVN) are struggling. While Mullen has delivered some commercial EVs in the past, it’s not enough to stem the cash burn.
Further, the company is at an early growth stage and I was surprised when Mullen announced a share buyback program. The idea of supporting the stock price when business fundamentals are weak does not make sense.
In a December letter, the CEO indicated that Mullen “needs to raise capital in 2024 to fund initiatives until such time as it is cash flow positive.” With no definite timeline for positive cash flows, I expect that dilution will continue to negatively impact investors.
On the date of publication, Faisal Humayun 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.
