Warren Buffett recently opined that it is impossible to foresee the ultimate winner in the electric vehicle market, suggesting that it may or may not end up being Tesla.
The competition, Buffett said during an annual Berkshire Hathaway shareholder meeting over the weekend, is becoming so tough and the market is so fickle that Tesla could follow a page from the history book of Ford, noting that “Henry Ford looked like he owned the world with the Model T … and 20 years later [Ford was] losing money”. While the Tesla bulls are still raging, the future of this industry is unclear, at best. This is a competitive playing field that is changing by the day, and the competition is heated.
While General Motors (GM) and Ford are still having trouble selling EVs for a profit, there has been much speculation that GM could end up overtaking Tesla in the long run.
And this week, Toyota announced a new EV that is intended to directly rival a Tesla model. It was only last month that Toyota formally committed itself to the EV segment, announcing that it would ambitiously launch 10 new electric models by 2026.
For now, Tesla remains the biggest EV manufacturer in the world by market capitalization at ~$524 billion, followed by Porsche at $114 billion and China-based BYD at $102 billion. GM is sixth on the list.
While Tesla is an obvious bet (for now) among investors, and the top auto giants continue to gain significant exposure to EVs while investors find lower risk associated with their manufacture of ICE vehicles as well, there are some red flags among the world’s top 15 EV producers and times ahead could get rather rocky. American EV startups, in particular, are poised to report earnings showing a significant cash burn and uncertainty about demand. Related: Shale Steals The Show As Oil & Gas Spending Surges
"Any company that's losing money with a low valuation is toast and EVs are no exception. I think it is just a slow bleed. Maybe they'll get lucky and some of their technologies maybe bought by bigger players," Thomas Hayes, chairman of hedge fund Great Hill Capital, told Reuters.
3 Stocks Requiring Extra Caution
#1 Lucid Group Inc (NASDAQ:LCID)
Lucid Motors has been privy to major investment from the Saudis. So, why the red flags?
Lucid is actually up over 15% year-to-date, but it’s also shed nearly 16% in the past month alone.
All that Saudi money can’t fix Lucid’s manufacturing issues. While many hedge funds questioned why the Saudis continue to pour money into Lucid despite the evidence that things aren’t going well, Riyadh seems to view this as a very long-term foray into the world of EVs. Lucid is the Kingdom’s EV trophy, not its near or even medium-term moneymaker. Lucid EVs are a symbol of the Crown Prince’s Vision 2030 project, and backing out now would mean defeat.
The Saudi PIF wealth fund owns a 60.46% stake in U.S.-based Lucid, which released Q1 2023 earnings earlier this week, showing a sharp drop in revenues along with a cut to its production outlook for this year.
The Saudi investment in Lucid was worth over $26 billion in 2021 and $17 billion in the middle of last year. Now, it’s worth about $8 billion, according to Reuters calculations.
Lucid says it has enough cash to get it into 2024, but demand is a serious concern. In March, Lucid announced an 18% cut to its workforce, and it lowered production guidance for this year of “over 10,000” sedans compares to 28,000 reservations in the Q4 earnings report. January was particularly unkind, with Lucid reporting the production of only 2,314 Air sedans.
#2 Nikola (NASDAQ:NKLA)
Battery-powered truck manufacturer Nikola is down over 68% year-to-date, and earnings season was a catastrophe that saw bigger-than-expected quarterly losses. Even worse, Nikola said it would pause production due to lagging demand and use that time to streamline its assembly line in Arizona.
“At the end of May, we plan to pause truck production as we convert the line to accommodate both hydrogen fuel cell and battery electric trucks on the same line and will resume production in July with the first saleable hydrogen fuel cell trucks,” Nikola said.Now, Nikola is building only to order as it attempts to cut costs. Share sales and dilution could be a part of its near future, which has sent the stock tumbling this week by another 16%.
#3 NIO Inc. (NYSE:NIO)
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Of the three EV stocks, China-based NIO is probably the least endangered red flag.
But it’s still been a very bearish week. NIO’s earnings won’t be released until June 9th, so this is one to watch closely, with investors hoping it won’t catch the downwind from other EV producers.
All in all, April was a pretty bad month for NIO. The stock is down around 14% year-to-date, and down 13% over the past month, but it might be much more attractively priced for investors now.
December saw NIO impress investors by delivering a record number of EVs, but since then, deliveries have lagged. Q1 deliveries are expected to have fallen sharply. Future guidance will be what investors latch onto in the earnings call.
By Alex Kimani for Oilprice.com
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