A few years after electric vehicles seemed poised to dominate the automotive industry, the stock market has sharply turned. Now, investing in electric vehicle stocks is an exercise in pain tolerance.
While Tesla’s (NASDAQ:TSLA) recent earnings commentary propelled the EV market higher (it certainly wasn’t the company’s numbers, which were abysmal), most other EV companies are struggling. Many high-potential but early-stage EV makers are now forced to resort to massive debt or equity issuances to stay alive. That means greater balance sheet pressures or dilution risks for investors.
With that in mind, the narrative among a certain group of electric vehicle stocks is shifting toward which will go bankrupt first. For those looking to take the bearish side of the trade on this sector, here are three stocks to pay attention to right now.
Lucid Motors (LCID)
Despite trading well below its all-time high, Lucid Motors (NASDAQ:LCID) won’t face bankruptcy soon. Ending 2023 with $4.78 billion in liquidity, many investors are confident this cash pile will last through at least 2025, as the company ramps up production of its Gravity SUV.
With a manageable debt-to-equity ratio of 0.43 and over 60% ownership by the Saudi Arabian government’s Public Investment Fund, Lucid has room to raise cash and support from a key shareholder.
Indeed, the Saudi investors backing Lucid have deep pockets and the company posesses a significant amount of cash to bring its high-end EVs to market. The thing is, at some point, even the wealthiest investors may cut their losses, if they think profitability may simply take too long to materialize.
While Lucid’s valuation on a relative basis looks fair, the question is whether revenue growth will accelerate faster than the market believes. Unless it does, and unless the Saudis continue to step into this stock in a bigger way, it’s a name that is not likely to be desired by long-term investors at current levels. LCID stock could have much more room to decline from here.
Mullen Automotive (MULN)
Another EV company facing some serious challenges is Mullen Automotive (NASDAQ:MULN). Mullen did not have a wonderful time in the market over the past year. The EV maker reported a whopping $308.9 million loss in one quarter, driven by high non-cash expenses. In other words, executives are being paid and assets are depreciating while investors are losing money.
Mullen executed three reverse stock splits in 2023 to maintain its Nasdaq listing, but remains in penny stock territory, dropping more than 99% over the last year. While aiming to expand its product line and boost production in 2024, Mullen faces serious capital challenges, with only $88 million in cash and a cash burn of over $226 million. This has predictably led to a surge in outstanding shares. Mullen’s uncertain track record raises concerns about its future viability.
Although recent efforts include a $170 million cost-cutting plan and a shift to commercial EV production, MULN stock is one that remains a top short idea — going long this name is a great way to gain more grey hairs.
Fisker (FSR)
Fisker (OTCMKTS:FSRN) faces the potential of bankruptcy unless creditors provide relief. The company has said it may not be able to meet its debt obligations, missing an $8.4 million interest payment. Talks for investment with a significant automaker failed, leading to restructuring and dwindling cash reserves, down to $325.5 million in 2023. The company’s employee count also dropped from 1,135 in December to 710 by April, but the cash burn continues.
Earlier this week, the EV startup announced plans to downsize its workforce and operations, aiming to reduce its physical presence. In March, it lowered prices for its 2023 Ocean SUV models to increase sales and raise capital.
Previously warning of going-concern risks, Fisker faces stiff competition and reduced consumer spending due to economic uncertainty. This going concern warning should be taken seriously by all investors right now.
Fisker is rapidly approaching bankruptcy. Outsourcing production to Magna International (NYSE:MGA) has led to quality issues and three NHTSA safety probes, resulting in over 40,000 reservation cancellations. Delisted from the NYSE, Fisker’s shares now trade over the counter, marking one of the fastest declines in the EV sector. This is just a stock investors shouldn’t gamble their hard-earned money on.
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.