Governments of several countries have announced ambitious plans to phase out internal-combustion vehicles in favor of electric vehicles (EVs) to achieve carbon neutrality over the next few decades. For example, the Biden administration has allocated $7.50 billion for EV charging stations under a $1 trillion bipartisan infrastructure bill. In addition, 29 Senate Democrats are currently seeking $160 billion in additional funding for EVs.
However, the EV industry faces several obstacles, such as production and supply chain bottlenecks due to an ongoing semiconductor chip shortage. Furthermore, given this industry’s increasing popularity, several start-ups have entered the sector absent an adequate product pipeline or technological capabilities. These stocks have been advancing in price based solely on industry tailwinds and aggressive marketing.
Thus, we believe fundamentally weak EV manufacturing stocks Faraday Future Intelligent Electric Inc. (FFIE), The Lion Electric Company (LEV), and Lightning eMotors, Inc. (ZEV) are best avoided now.
Click here to checkout our Electric Vehicle Industry Report for 2021
Faraday Future Intelligent Electric Inc. (FFIE)
FFIE designs, manufactures, sells, and distributes EVs and associated products. The company went public through a reverse merger with Property Solutions Acquisition Corp. and began trading on July 22, 2021. The business combination raised $1 billion in proceeds. FFIE is based in Gardena, Calif.
This month, FFIE declared that it is searching for permanent flagship store locations in New York City and Los Angeles. The company is targeting a flagship store presence in 20 top cities worldwide by 2025. The company is not expected to benefit from this long-term project immediately.
On August 26, FFIE unveiled its plans to partner with electric installation company Qmerit to develop future EV home charging energy solutions. It might take a while for the company to deploy such innovations, however.
Analysts expect the company’s EPS to remain negative at least until the next year. The stock has lost 33.8% in price since it went public on July 22, to close yesterday’s trading session at $9.26.
FFIE’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
FFIE has an F Growth and Value grade, and a D Quality grade. In the 64-stock, D-rated Auto & Vehicle Manufacturers industry, it is ranked #54. To see additional POWR Ratings for Momentum, Stability, and Sentiment for FFIE, click here.
Click here to check out our Automotive Industry Report for 2021
The Lion Electric Company (LEV)
LEV, which is headquartered in Canada, produces commercial EVs. The company went public in a reverse merger with Special Purpose Acquisition Company (SPAC), Northern Genesis Acquisition Corp., on May 7, 2021.
Last month, LEV retained its Canadian flagship corporation, Pomerleau, to establish a new battery plant and innovation center in the YMX International Aerocity of Mirabel. However, initial production in the plant is not expected to start until the second half of 2022.
On August 11, LEV entered a new revolving credit facility with a syndicate of lenders represented by the National Bank of Canada. The move could lead to a higher interest burden for the company.
In its second fiscal quarter, ended June 30, LEV’s gross profit decreased 14.2% year-over-year to $0.90 million, while its operating loss increased 7,863% year-over-year to $76.1 million. Its net loss for the period increased 13,384.8% from the prior-year quarter to $178.49 million, and its loss per share rose 11,200% from the same period last year to $1.13.
An $88.18 million consensus revenue estimate for the current year (fiscal 2021) indicates a 276.5% year-over-over increase. However, its EPS is expected to remain negative in the current year. The stock has declined 31.3% in price since it started trading publicly on May 7, to close yesterday’s trading session at $12.21.
It’s no surprise that LEV has an overall F rating, which translates to a Strong Sell in our POWR Ratings system.
The stock has an F Value grade, and a Growth, Stability, Sentiment, and Quality grade of D. It is ranked #55 out of the 64 stocks in the Auto & Vehicle Manufacturers industry.
Click here to see the additional POWR Ratings for LEV (Momentum).
Lightning eMotors, Inc. (ZEV)
ZEV produces EVs, including delivery trucks, shuttle buses, passenger vans, and city transit buses. It also provides EV charging systems. On May 7, 2021, the Loveland, Colo.-based company went public through a reverse merger with blank-check company GigCapital3, Inc.
On September 1, The Schall Law Firm reported that it is investigating ZEV on behalf of the investors regarding alleged securities laws violations. It is alleged that ZEV issued misleading statements or failed to disclose information to investors. Furthermore, Pomerantz LLP is investigating ZEV for alleged unlawful practices. In addition to these actions, several other law firms are investigating the company on various grounds.
For its second fiscal quarter, ended June 30, ZEV’s gross loss increased 103.8% year-over-year to $1.13 million. The company’s net loss came in at $46.06 million, up 1,561.5% from the prior-year quarter, while its net loss per share increased 690% from the same period last year to $0.79.
The Street’s $205.03 million revenue estimate for the next year (fiscal 2022) reflects a 666.5% year-over-year increase. However, analysts expect its EPS to remain negative at least until the next year. The stock has declined 2.6% in price over the past five days to close yesterday’s trading session at $9.15.
ZEV’s bleak prospects are reflected in its POWR Ratings. The stock has an overall rating of D in our proprietary POWR Ratings system.
ZEV also has a D grade for Stability and Sentiment. It is ranked #45 in the Auto & Vehicle Manufacturers industry.
In addition to the POWR Ratings we’ve stated above, one can see ZEV ratings for Growth, Value, Momentum, and Quality here.
Click here to checkout our Electric Vehicle Industry Report for 2021
FFIE shares were trading at $9.76 per share on Thursday afternoon, up $0.50 (+5.40%). Year-to-date, FFIE has declined -2.40%, versus a 20.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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