Despite gaining traction, the electric vehicle (EV) industry’s growth hinges on sufficient deployment of charging stations and continued gains in efficiency. The industry is still hampered by a semiconductor shortage, which is expected to last until next year. Hence, fundamentally weak EV stocks popular on Reddit such as Tesla, Inc. (TSLA) and Canoo Inc. (GOEV) are best avoided now.
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The Reddit community came into the limelight earlier this year, following the GameStop (GME) short-squeeze in January. However, this squeeze was short-lived owing to GME’s weak fundamentals. The community is also taking an active interest in the growing electric vehicle (EV) industry.
Supported by federal funding, the EV market is expanding rapidly. However, according to the experts, in the United States, charging facilities are five to 10 times lower than they should be to fulfill Biden’s plan of “50% cars sold to be EVs by 2030.” It requires far more than the $7.5 billion allocated in the infrastructure bill to reach the goal. Additionally, the industry is still grappling with the semiconductor shortage. Since semiconductor is a key component in EV production, the deficit has been affecting the production targets of several companies. Marvell Technology Group Ltd. (MRVL) CEO Matt Murphy expects the semiconductor shortage to continue into 2022 and can potentially extend beyond that.
Tesla, Inc. (TSLA)
This EV manufacturing behemoth does not need any introduction. TSLA sells EVs, electric generation systems, and storage systems globally. The company operates through the segments Automotive; and Energy Generation and Storage.
On September 29, Rosen Law Firm, a global investor rights law firm, encouraged shareholders of TSLA to join a class-action lawsuit regarding the formal investigation underway about the company’s Advanced Driver Assistance System (ADAS). After the investigation was formally announced on August 16 by the National Highway Traffic Safety Administration (NHTSA), following a series of collisions with parked emergency vehicles, TSLA’s stock slumped 4%. The company is also under investigation by several other law firms like Pomerantz LLP, the Schall Law Firm, and Glancy Prongay, and Murray LLP.
In terms of forward EV/EBIT, TSLA is currently trading at 150.41x, 1,048.6% higher than the industry average of 13.10x. Its forward price/Sales multiple of 15.21 is 1,164.3% higher than the industry average of 1.20.
In the second fiscal quarter ended June 30, TSLA’s total revenue increased 98.1% year-over-year to $11.96 billion. However, the total cost of revenues also increased 90.3% from the prior year quarter to $9.07 billion. Total operating expenses increased 67.2% from the same period last year to $1.57 billion.
The consensus EPS estimate of $7.12 for the next year (fiscal 2022) indicates a 32.3% year-over-year improvement, while the consensus revenue estimate of $67.43 billion for the upcoming year reflects a rise of 34.4% from the current year.
Over the last five days, the stock has gained marginally to close yesterday’s trading session at $781.53.
TSLA’s POWR Ratings are consistent with this bleak outlook. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. The stock has a Value grade of F, and a Stability grade of D. It is ranked #34 out of the 63 stocks in the Auto & Vehicle Manufacturers industry. This industry is rated D.
Click here to see the additional POWR Ratings for TSLA (Growth, Momentum, Sentiment, and Quality).
Canoo Inc. (GOEV)
GOEV operates as a mobile technology company producing and selling EVs to customers in the United States. It has developed a modular electric platform for delivering maximum vehicle interior space. The company went public in a reverse merger with Hennessy Capital Acquisition Corp. IV on December 22, 2020.
In August, Kahn Swick & Foti, LLC announced the continuation of its investigation on GOEV regarding the class-action lawsuit for not disclosing material information, violating federal securities laws, and whether its officers and executives have violated their fiduciary duties toward shareholders or not. The company faces other lawsuits from law firms like Scott+Scott Attorneys at Law LLP and Kehoe Law Firm, P.C.
On September 30, GOEV partnered with automotive testing and simulation company AVL to develop an ADAS proprietary software for the former’s lifestyle vehicle. The company will own the software once developed. However, it might take some time before the company realizes gains.
GOEV’s trailing 12 months EV/Sales multiple of 453.43 is 29,106.9% higher than the industry average of 1.55. In terms of trailing 12 months Price/Sales, GOEV is currently trading at 512.20x, 40,819.6% higher than the industry average of 1.25x.
For the second fiscal quarter ended June 30, GOEV’s loss from operations increased 426.8% year-over-year to $104.35 million. Net loss and comprehensive loss came in at $112.55 million, up 384.3% from the prior-year quarter, while net loss per share rose 78.6% year-over-year to $0.50.
Analysts expect its EPS to decrease 512.5% year-over-year in the current quarter (ending December 2021) to negative $0.49.
The stock has declined 64% since it went public on December 22, 2020, closing yesterday’s trading session at $6.81.
GOEV’s poor prospects are reflected in its POWR Ratings. The stock has an overall rating of F which translates to a Strong Sell in our POWR Rating system.
The stock has an F grade for Growth and Sentiment, and a D grade for Value, Stability, and Quality. It is ranked #59 in the Auto & Vehicle Manufacturers industry.
To see the additional POWR Ratings for Momentum for GOEV, click here.
TSLA shares rose $0.41 (+0.05%) in after-hours trading Tuesday. Year-to-date, TSLA has gained 10.62%, versus a 16.97% 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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