NKLA – The world is gradually shifting from fuel-run cars to electric vehicles due to improved automotive performance, government subsidies, and cost-efficiencies. While Electrameccanica Vehicles (SOLO) and Arcimoto (FUV) are increasingly gaining popularity and could generate promising returns, players like Nikola Corp. (NKLA) and Hyliion Holdings (HYLN) must be avoided in the near-term due to their weak fundamentals and recent newsflow. .
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The alternative energy market is steadily growing with climate change becoming a pressing concern across the globe. Electric vehicle (EV) companies are riding the sector tailwinds as more people are shifting toward EVs, primarily due to cost-efficiency, improved battery life, and enhanced performance. However, the EV space is getting crowded, and not all the players in this booming market possess sound fundamentals.
Global electric car sales for September 2020 witnessed a 91% year-over-year surge to an all-time high of 345,000, mostly due to a massive increase in sales in Europe and China. New Jersey followed the California ban on the sale of gas cars last month, requiring car sales to be zero-emission by 2035. There has been growing excitement among investors about the world going electric.
The skyrocketing performance of EV stocks is evident from KraneShares Electric Vehicle and Future Mobility ETF’s (KARS) 63.5% gain so far this year compared to the S&P 500’s 12.4% returns in the same period. Moreover, the recent presidential election also fueled gains in EV stocks as Biden’s energy plan proposes large tax credits for EV purchases, investments in charging infrastructure, and a cash for clunkers program centered around EVs.
Despite these positive catalysts and favorable trends, investors should be judicious in picking the best stocks. It could be a good idea to add Electrameccanica Vehicles Corp. (SOLO) and Arcimoto Inc. (FUV) to your portfolio to significantly benefit from their high growth rates. On the other hand, it’s wise to avoid weaker players like Nikola Corp. (NKLA) and Hyliion Holdings Corp. (HYLN) at this moment as these companies have poor prospects and are susceptible to pullbacks.
Electrameccanica Vehicles Corp. (SOLO)
SOLO is a Canada-based development-stage company that develops, manufactures, and sells electric vehicles. The company operates in two segments, Electric Vehicles, and Custom Build Vehicles. The company’s flagship vehicle is an innovative, purpose-built, single-seat EV called the SOLO whose commercial production began in August this year.
SOLO selected Arizona and Tennessee as two sites for the SOLO EV US assembly facility and engineering technology center. This allows the company direct access to the United States EV market without any trade barriers. The company is planning to launch a utility and fleet version of SOLO EV, expected to be available by early 2021. Moreover, in late October, SOLO announced the opening of six new retail showrooms across the country within November. This is in addition to the four showrooms already operating in the country.
The first batch of SOLO EVs was presented in the Los Angeles Ride and Drive press event last month and the company has successfully delivered the first shipment of SOLO Evs into the United States in the third quarter for demonstration purposes. SOLO’s revenue increased 50% year-over-year in the last reported quarter. However, the company is still not profitable.
SOLO has launched the prototype of its proprietary vehicle in the market and has offered testing facilities to major media outlets during the unveiling event. The company is on track to begin commercially selling its vehicles by the end of this year. Hence, analysts expect current year EPS to rise 18.3% and grow 6.1% next year.
SOLO has gained nearly 300% year-to-date to close yesterday’s trading session at $3.56. The stock is up nearly 184.4% in the past month and is currently trading at a 37% discount from its all-time high of $13.60.
Under POWR Ratings, the company has been accorded an “A” rating for Trade Grade and Industry Rank. Out of 34 stocks in the Auto & Vehicle Manufacturers industry, SOLO is rated #28.
Arcimoto Inc. (FUV)
FUV designs, develops, manufactures, and sells three-wheeled Evs. Its product portfolio primarily includes Arcimoto’s FUV (Fun Utility Vehicle) that has two seats. The company is also working on Deliverator, a three-wheel delivery car. It also plans to offer the Rapid Responder for first responders. Both models are similar to the FUV. Every FUV vehicle is built at the Arcimoto Manufacturing Plant in Eugene, Oregon.
FUV has recently begun the development of its newest product, the Roadster, a pure electric thrill ride, in collaboration with Corbin-Pacific and National Cycle, to compete in the recreational motorcycle segment. The company has also partnered with DHL Global Forwarding to deliver Arcimoto FUVs from the factory floor to customer homes across the country.
In the third quarter ended in September 2020, the company generated $683,895 in revenues, increasing 1,953% year-over-year. The increased revenue in the current year period was due to the resumption of vehicle production and customer deliveries. A total of 31 vehicles were delivered in September alone. The company reported a loss of $0.15 per share, significantly improving from the year-ago loss of $0.22 per share.
FUV is producing ultra-efficient and affordable Evs to help the world shift to a sustainable energy-based transportation system. The company is consistently reporting a sequential net increase in pre-orders that it looks to fulfill as quickly as possible. FUV is growing fast and the company is focusing on scaling to mass production. Hence, analysts expect EPS to rise by 35.3% in the current year and 18.2% next year.
FUV closed yesterday’s trading session at $13.87, gaining 761.5% year-to-date. Moreover, the stock has gained more than 105% in the past three months. FUV has recently hit its 52-week high of $20.20 but is presently trading just 31.3% below it.
It’s no surprise that FUV is rated “Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and Industry Rank. It is ranked #20 out of 34 Auto & Vehicle Manufacturers stocks.
Nikola Corp. (NKLA)
NKLA operates as an integrated zero-emissions transportation systems provider. It designs and manufactures battery-electric and hydrogen-electric vehicles, drivetrains, energy storage systems, and hydrogen fueling station infrastructure. NKLA has been all over the news this year for investors accusing the company of being “an intricate fraud built on lies” based on false statements by its founder, Trevor Milton.
Milton stepped down following a scathing report by short-selling firm Hindenburg Research that accused him of fraud, and the company later admitting to faking video of its electric hydrogen truck driving prototype. NKLA is reportedly being investigated by the Department of Justice and the SEC and is presently being sued by The Schall Law firm. The company has recently formed a strategic partnership with General Motors (GM) for an 11% stake in the supply of batteries and fuel cells, but the deal with GM is uncertain and under renegotiation.
NKLA has not produced any products yet and doesn’t even possess a manufacturing factory. In the third quarter, the company reported a loss of $0.31 per share compared to the year-ago loss of $0.06 per share. The company plans to begin trial production by the third quarter of 2021 in the Coolidge manufacturing facility in Arizona and anticipates starting the production of its Nikola Tre in the fourth quarter of 2021. However, analysts expect next year’s EPS to decline by 14.7% year-over-year.
NKLA has lost more than 22.8% in the past three months to close yesterday’s trading session at $30.24. The company became public in June 2020 and the lock-up period for the company’s insiders, which is followed up after the initial listing of a stock restricting insiders to dump shares in the open market, is expiring on November 30th. The stock could experience heavy selling pressure once the lock-up period expires.
NKLA’s poor prospects are also apparent in its POWR Ratings which gives it a “Sell” rating. It also has an “F” for Buy & Hold Grade, a “D” for Peer Grade, and a “C” for Trade Grade. It is ranked #30 out of 34 stocks in the Auto & Vehicle Manufacturers industry.
Hyliion Holdings Corp. (HYLN)
HYLN designs, develops, and sells electrified powertrain solutions, particularly electrified powertrain solutions for Class 8 commercial vehicles. It provides battery management systems for hybrid and fully electric vehicle applications. The company has recently gone public via a special purpose acquisition company (SPAC) through a merger with a shell company, Tortoise Acquisition (SHLL), in a deal worth over $500 million.
HYLN initially claimed that its technology would improve the fuel efficiency of its trucks by 10% to 30%. Detractor Bonitas Research alleged the company’s fuel efficiency claim to be a lie. Consequently, an external test of HYLN’s technologies by PAM Transportation Services was performed that saw only “a small percentage” improvement in fuel efficiency. Moreover, HYLN claims to have over 700 natural gas stations when they own none. The company might be subject to an SEC investigation.
HYLN has recorded zero revenues to date when it is anticipated to generate $1 million of revenue this year. However, the company installed eight hybrid electric units in the third quarter of 2020 for four fleet-based customers. It reported a loss of $0.76 per share compared to the year-ago loss of $0.45 per share. The company signed a natural gas fueling partnership with American Natural Gas during the quarter that also executed a pre-order agreement to purchase up to 250 Hypertruck ERX vehicles. However, long term revenue depends on the ERX product whose success is uncertain right now.
HYLN began trading under its ticker on October 2nd and the stock has lost nearly 38.8% to date. It closed yesterday’s session at $24.19 to trade 58.8% below its 52-week high of $58.66.
HYLN’s POWR Ratings are consistent with this bleak outlook. It has an overall rating of “Sell” and an “F” for Buy & Hold Grade, a “D” for Trade Grade and Peer Grade, and a “C” for Industry Rank. Within the Trucking Freight industry, it’s ranked #18 out of 20.
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NKLA shares were trading at $29.45 per share on Friday morning, down $0.79 (-2.61%). Year-to-date, NKLA has gained 185.37%, versus a 14.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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