As the possibility of a recession continues to loom, the automobile industry is becoming increasingly worried about a period of strain. In times of economic uncertainty, consumers often reduce their spending on high-priced items like cars, which can lead to a decline in the demand for automobiles. This, in turn, could put significant pressure on the industry.
Given the current market uncertainties, it could be wise to opt for a bearish stance on the fundamentally weak stocks Rivian Automotive, Inc. (RIVN), Lucid Group, Inc. (LCID), and ChargePoint Holdings, Inc. (CHPT).
The global auto industry is undergoing a profound transformation with implications for the energy sector as electrification is set to reduce the need for five million barrels of oil a day by 2030. The International Energy Agency (IEA) recently reported that Electric Vehicle (EV) sales are expected to leap 35% this year to reach 14 million.
Moreover, with increasing concerns about climate change, Americans are seen hoping to zero-emissions vehicle transition through EVs, thereby removing a major source of carbon emissions from their day-to-day life. According to a survey, over half of consumers intend to buy an EV within the next five years.
However, the stakes are running high in the EV space as Tesla, Inc. (TSLA) slashed prices to spur demand as competition escalates, leading some companies to forecast a coming price war in the marketplace. Ford Motor Company’s (F) Chief Executive Officer Jim Farley said these price cuts could start a pricing war and turn EVs into commodities.
Furthermore, the Fed’s aggressive rate hikes have made it painful for consumers to procure discretionary products like cars. As the global economic outlook turns gloomier, consumers will likely reduce their discretionary spending, hurting the demand for the automobile industry.
Given this backdrop, fundamentally weak EV stocks RIVN, LCID, and CHPT could be avoided. Let’s evaluate the fundamentals of these stocks.
Rivian Automotive, Inc. (RIVN)
RIVN is engaged in designing, developing, manufacturing, and sale of electric vehicles and accessories. The company offers five-passenger pickup trucks and seven-passenger sports utility vehicles. In addition, it provides Rivian Commercial Vehicle platform for Electric Delivery Van collaboration with Amazon.com, Inc.
In terms of forward Price/Sales, RIVN is trading at 3.20x, 283.3% higher than the industry average of 0.84x. Likewise, its forward EV/Sales multiple of 1.25 is 10.5% higher than the industry average of 1.13.
RIVN’s trailing-12-month net income and levered FCF margins of negative 292.63% and 213.31% compares to the industry averages of 4.38% and 2.95%, respectively.
During the first quarter that ended March 31, 2023, RIVN’s gross loss increased 6.6% year-over-year to $535 million. The company’s adjusted net loss for the same period came in at $1.17 billion and $1.25 per share, while its adjusted EBITDA loss stood at $1.06 billion. Also, its loss from operations came in at $1.43 billion.
In addition, its cash and cash equivalents, as of March 31, 2023, amounted to $11.24 billion compared to $11.56 billion for the period ended December 31, 2022.
Analysts expect RIVN’s EPS to remain negative for the fiscal years 2023 and 2024. Moreover, it failed to surpass the revenue estimates in three of the trailing four quarters.
The stock has lost 64.5% over the past nine months to close the last trading session at $13.84.
RIVN’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, equating to a 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.
It has an F grade for Stability and Quality and a D for Value and Sentiment. Within the Auto & Vehicle Manufacturers industry, it is ranked #52 of 60 stocks. Click here to see the other ratings of RIVN for Growth and Momentum.
Lucid Group, Inc. (LCID)
LCID is a technology and automotive company focused on designing, developing, manufacturing, and sale of electric vehicles, EV powertrains, and battery systems using its own equipment and factories.
In terms of forward EV/Sales and Price/Sales, LCID is trading at 12.95x and 13.91x, significantly higher than the industry averages of 1.13x and 0.84x. Also, its forward Price/Book ratio of 6.03 compares with the industry average of 2.45.
LCID’s total revenue for the first quarter that ended March 31, 2023, amounted to $149.43 million. Its adjusted EBITDA loss widened 67.8% from the year-ago value to $643.89 million, while its attributable net loss came in at $779.53 million and $0.43 per share, widening 28.9% and 19.4% from its prior-year quarter.
Also, its loss from operations increased 29.2% year-over-year to $772.16 million in the same period.
In addition, the stock’s trailing-12-month gross profit margin and net income margin of negative 171.54% and 286.13% compare to the industry averages of 35.15% and 4.38%, respectively.
Street expects LCID’s EPS to decrease by 17.3% year-over-year in the second quarter (ending June 2023) to a loss per share of $0.39 and remain negative for the fiscal year 2023. Moreover, it failed to surpass its EPS and revenue estimates in three out of the four trailing quarters.
LCID’s shares have declined 60.9% over the past nine months to close the last trading session at $7.06.
LCID’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Value, Stability, and Quality and a D for Growth and Sentiment. Within the same industry, it is ranked last. To see LCID’s ratings for Momentum, click here.
ChargePoint Holdings, Inc. (CHPT)
CHPT is a global provider of electric vehicle charging networks and charging solutions. It offers a portfolio of hardware, software, and services for commercial, fleet, and residential customers. The company has delivered more than 158 million charging sessions year-to-date, with drivers plugging into its network on average every second.
In terms of forward EV/Sales, CHPT is trading at 4.23x, 165.4% higher than the industry average of 1.59x. Likewise, its forward Price/Sales multiple of 4.30 is 239.2% higher than the industry average of 1.27x.
Also, the stock’s trailing- 12-month net income margin, ROCE, and ROTA of negative 73.73%, 76.52%, and 31.96% compare to the industry averages of 6.40%, 13.64%, and 5.07%, respectively.
In the fiscal fourth quarter that ended January 31, 2023, CHPT’s loss from operations amounted to $78.31 million. The company’s attributable net loss came in at $78.01 million, widening 29.7% from the prior-year quarter, while its net loss per share of $0.23 remained flat year-over-year in the same period. Also, its total operating expenses increased 15.1% from the year-ago value to $111.30 million.
Analysts expect CHPT’s loss per share for the first quarter (ended April 30, 2023) to be $0.17. Its EPS is expected to remain negative for the fiscal year 2023 and decline by 53.7% per annum over the next five years.
Over the past nine months, the stock has lost 48.6% to close the last trading session at $8.58.
CHPT’s POWR Ratings reflect this weak outlook. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system. It has an F grade for Value and Stability and a D for Sentiment and Quality. In the Industrial - Equipment industry, it is ranked #83 out of 91 stocks.
Beyond what I’ve stated above, we have also given CHPT grades for Growth and Momentum. Get all CHPT ratings here.
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RIVN shares were trading at $13.03 per share on Friday afternoon, down $0.81 (-5.85%). Year-to-date, RIVN has declined -29.30%, versus a 7.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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