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The transformation of the automotive industry from internal-combustion-powered cars to electric vehicles (EVs) has been one of the leading clean energy initiatives of governments worldwide. Several states in the U.S. have announced a ban on the sale of new internal combustion vehicles, beginning 2035, to reduce carbon emissions. Several countries in the European region and China have announced similar plans to allow sales of only EVs beginning 2035.
However, the electric vehicle space has arguably become overcrowded with several new entrants that do not possess concrete product portfolios or rigorous business models. Furthermore, most of these startups lack substantial software backing, which is an essential requirement for well-built EVs. The stocks of these companies are currently riding bullish market sentiment surrounding the industry and lack adequate fundamental strength to justify their stock price gains. Moreover, competition is rising with major traditional automobile manufacturers entering the EV space.
Because many analysts are now of the opinion that EV stocks’ blistering pace has driven them into a price bubble, investors have started selling stock with stretched valuations and weak growth prospects.
Given this scenario, we think it would be wise to avoid EV players Nikola Corporation (NKLA – Get Rating), Electrameccanica Vehicles Corp. (SOLO – Get Rating), and GreenPower Motor Company Inc. (GP – Get Rating). They have limited market reach and technical expertise compared to the well-established players.
NKLA delivers integrated zero-emissions transportation solutions. The company is a designer and manufacturer of zero-emission battery-electric and hydrogen-electric vehicles, electric vehicle drivetrains, vehicle components, energy storage systems, and hydrogen station infrastructure.
A class action lawsuit has been filed by various law firms against NKLA over the past few months. The plaintiffs have alleged that NKLA has materially misrepresented its profitability and business prospects and exaggerated its hydrogen production capabilities. They further allege that the company has overstated its ability to lower the cost of hydrogen fuel and, as a result, when the market learned the truth about Nikola, investors suffered heavy damages. The lawsuit and surrounding negative press have caused a lot of instability and disruption in the normal functioning of the business, which was already affected by the pandemic.
Last December, NKLA discontinued its collaboration with Republic Services (RSG) on refuse truck development because the project, which involved a combination of various new technologies and design concepts, would result in longer than expected development time and unexpected costs. The program’s termination could cause a delay in the company’s plan to develop its zero-emissions refuse truck.
NKLA is a pre-revenue company. Its loss from operations have increased 425.7% year-over-year to $146.84 million in the fourth quarter ended December 31, 2020. Its net loss has increased 459.7% from its year-ago value to $147.10 million. Its loss per share grew 137.5% to $0.38 over the same period.
Analysts expect NKLA’s loss per share to increase 38.7% year-to-year to $0.86 in the fiscal 2021 ending December 31. A consensus revenue estimate of $40,000 in the current quarter (ending March 31, 2021) represents a 31% decrease from the year-ago value. The stock has lost 53.4% in value over the past six months.
NKLA’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which equates to Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
NKLA has an F grade for Stability, Value, and Quality. It is currently ranked #50 in the 53-stock Auto & Vehicle Manufacturers Industry.
In total, we rate NKLA on eight different levels. Beyond what we stated above, we have also given NKLA grades for Momentum, Sentiment, and Growth. Get all NKLA’s ratings here.
Based in Canada, SOLO is a development-stage company engaged in the automobile and multi-utility vehicles business sector. The company’s flagship vehicle, SOLO, is the innovative, purpose-built, single-seat EV. It operates in two reportable business segments: Electric Vehicles and Custom build vehicles.
In mid-January, SOLO expanded its retail network to three new West Coast locations, bringing its total retail locations to 13 across three Western states. Slated to open in March, the new direct-to-consumer retail locations will offer shoppers the ability to learn more, explore vehicles and place reservations onsite.
SOLO’s loss from operations has increased 12.8% year-over-year to C$8.80 million in the third quarter ended September 30, 2020. The increase in operating loss was due primarily to increased G&A expenses and increased stock-based compensation expenses. Its net loss has increased 181.1% from its year-ago value to C$14.9 million over the same period. This increase was primarily related to the fair market revaluation of the company’s warrant derivative liability.
Analysts expect SOLO’s EPS to decrease 100% year-over-year to a negative $0.08 in the current quarter, ending March 31, 2021. The company missed the Street’s EPS estimates in three of the trailing four quarters. A consensus revenue estimate of $140,000 for the about-to-be reported quarter ended December 31, 2020 represents a 37.6% decrease year-over-year.
The stock has gained 221.4% over the past year. However, SOLO’s financials are too weak to justify its price gains because the company is still its development-stage. This justifies SOLO’s 28.5% decrease in value over the past month.
SOLO’s poor prospects are apparent in its POWR Ratings also. The stock has an overall rating of F, which equates to a Strong Sell in our proprietary rating system. SOLO has an F grade for Quality, Stability, and Value. In the same industry, the stock is ranked #49.
Click here to see the additional POWR Ratings for SOLO (Momentum, Growth, and Sentiment).
Based in Canada, GP develops, manufactures, and distributes a full suite of high-floor and low-floor all-electric medium and heavy-duty vehicles, including transit buses, school buses, shuttles, cargo vans and a cab and chassis. The company’s product line includes EV Star, The Battery Electric Automotive School Transportation (Beast), and the Transit line.
GP faces risks from the COVID-19 pandemic which has had, and will continue to have, a material adverse impact on the business and its financial condition. The pandemic has caused a significant reduction in public transit ridership, one of the primary market segments served by GP, which has led to reduction in this segment’s sales. GP’s revenues have decreased 51.8% year-over-year to $2.40 million in the third quarter, ended December 31, 2020. Its gross profit has decreased 38.1% year-over-year to $0.91 million, while its loss from operations has risen 272.9% from its year-ago value to $1.79 million. The company reported a net loss of $2.43 million, up 127.1% year-over-year, resulting in a loss per share of $0.11.
The stock has lost 16.3% in value year-to-date. In addition, , GP has limited market reach and technical expertise needed to make it a better buy. With numerous new entrants now entering the market, the company faces stiff competition from both newly emerged and well-established companies.
GP is rated F, which equates to Strong Sell in our POWR Ratings system. GP has an F grade for Quality, Stability, and Value. It is currently ranked #47 of 53 stocks in the same industry.