The electric vehicle (EV) market has seen significant growth over the past years, with electric car sales hitting 6.60 million in 2021, more than tripling their market share from two years earlier. However, production challenges stemming from lingering supply chain disruptions are taking a toll on the industry, making it difficult for EV makers to meet the high demand.
Despite solid demand, heavy investments, and federal support, the industry still struggles with chip shortages and a lack of battery manufacturing capacities. Additionally, lack of enough charging infrastructure, increased time to charge an EV compared to gas-fueled vehicles, and high initial costs could mar the industry’s growth.
Given this scenario, fundamentally weak EV stocks NIO Inc. (NIO) and Lucid Group, Inc. (LCID), which have declined significantly in price this year, are best avoided now.
NIO Inc. (NIO)
Headquartered in Shanghai, China, NIO designs, develops, manufactures, and sells smart electric vehicles. It offers five, six, and seven-seater electric SUVs, as well as smart electric sedans.
For the fiscal quarter ended March 31, 2022, NIO’s loss from operations increased 639.6% year-over-year to $345.26 million. Net loss for the period increased 295.2% from the prior-year quarter to $281.21 million. Gross profit declined 6.9% from the same period the prior year to $228.23 million. The stock has declined 27.2% year-to-date to close the last trading session at $23.05.
Despite the price decline, NIO looks extremely expensive at the current price level. In terms of forward Price/Sales, the stock is currently trading at 4.19x, much higher than the industry average of 0.86x. Also, NIO’s forward Price/Book of 9.49x compares to the industry average of 2.26x.
NIO’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, 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.
NIO also has a Growth and Stability grade of F and a Value, Sentiment, and Quality grade of D. In the 65-stock D-rated Auto & Vehicle Manufacturers industry, NIO is ranked #62.
Click here to see the additional POWR Ratings for NIO (Momentum).
Lucid Group, Inc. (LCID)
LCID, a technology, and automotive company, designs, engineers, and builds electric vehicles, EV powertrains, and battery systems.
For the fiscal first quarter ended March 31, 2022, LCID’s loss from operations increased 100% year-over-year to $597.53 million. Net cash used in operating activities increased 126.2% from the prior-year period to $494.65 million, while the company’s net cash used in investing activities came in at $185.08 million, up 95.3% in the period.
Analysts expect the company’s EPS to decline 69.4% per annum over the next five years.
The stock has slumped 49.3% year-to-date to close the last trading session at $19.30. However, its valuation is yet to reflect the company’s weakness. In terms of forward Price/Sales, the stock is currently trading at 23.58x, much higher than the industry average of 0.86x. Also, LCID’s forward Price/Book of 13.45x compares to the industry average of 2.26x.
It’s no surprise that LCID has an overall F rating, which translates to Strong Sell in our POWR Ratings system. LCID also has an F grade for Value, Stability, and Quality. It is ranked #53 in the same industry.
To see the additional POWR Ratings for Growth, Momentum, and Sentiment for LCID, click here.
NIO shares were trading at $23.73 per share on Friday afternoon, up $0.68 (+2.95%). Year-to-date, NIO has declined -25.09%, versus a -17.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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