2020 has ushered the EV industry into limelight as consumers have grown more environmentally cautious. With both developed and developing nations announcing measures to curb pollution, clean energy and EV companies are benefiting from huge investor attention across the globe.
What began as a good year for Tesla, Inc. (TSLA) spilled over into to many burgeoning EV companies as investors discouraged by the high price of TSLA stock went looking for lower priced alternative companies with similar growth potential. Recognizing this, emerging companies have invested heavily in marketing and advertising to lure investors, which has helped their shares to register double or even triple-digit gains year-to-date, even without the financials to support this growth.
Companies such as Nikola Corporation (NKLA), Kandi Technologies (KNDI) and Electrameccanica Vehicles Corp (SOLO) are prime examples of overvalued stocks that have reported losses over the past couple of quarters. We believe that these stocks, which are driven currently the booming EV sector, could crash at any moment because, they due to insufficient production capacity to justify the ultra-premium valuation of their shares.
Nikola Corporation (NKLA)
NKLA made headlines earlier this year when it went public through a SPAC with blank check company Vector IQ. The company designed first-of-its-kind hydrogen fuel-cell powered electric trucks that quickly became a big hit. As investors flocked to the name, NKLA gained 178.5% within 5 days of its public debut on June 4th, hitting an all-time high of $93.99.
However, the bubble soon burst as Hindenburg Research published a report that pointed to alleged misconduct by company and its CEO Trevor Milton. NKLA had allegedly falsified the type of technology used in its production to sway investors and published misleading reports regarding its progress in production. Following this report, in September, Milton resigned in September.
To fixits tainted reputation, NKLA announced a partnership with General Motors (GM) in September. Under this deal, GM was supposed to acquire an 11% stake in NKLA and be a major supplier of hydrogen fuel-cells for NKLA trucks. However, the deal fell through in November. Currently, the companies have signed a non-binding Memorandum of Understanding (MoU) under which GM will supply Hydrotec fuel systems for NKLA’s semi-trucks.
NKLA is still constructing its manufacturing facilities in Coolidge and Arizona, after which production should begin.
NKLA reported a loss from operations of $117,299 in the third quarter ended September 2020; its net loss per share was $0.31.
Analysts expect NKLA to report negative EPS through the end of 2021. The consensus revenue estimate of $40,000 for the next quarter ending March 2021 indicates a 31% decline year-over-year.
NKLA has declined 74.2% over the past six months. Its bleak outlook is reflected in its POWR Ratings. It is rated “Sell” with a “D” for Peer Grade, and “F” for Trade Grade and Buy & Hold Grade. It is currently ranked #29 out of 34 stocks in the Auto & Vehicle Manufacturers industry.
Kandi Technologies (KNDI)
KNDI, which based in China, manufactures electric vehicles and standalone EV parts. The company is known for its unique off-road electric all-terrain vehicles (ATV) and utility terrain vehicles (UTV).
KNDI has also been the target of Hindenburg research firm, which alleges that the company falsified sales records to boost its valuation. KNDI raised $160 million in the US markets by reporting impressive revenue growth rates, when approximately 64% of the total sales were made to an undisclosed third party. The company is currently being investigated by several law firms to ascertain the depth of the alleged fraud.
KNDI nevertheless recently raised $60 million through a purchase agreement of 9.40 million common shares issued institutional investors. The company’s wholly owned subsidiary, Zhejiang Kandi Smart Battery Swap Technology Co. Ltd., is currently administering an IPO on the Shanghai STAR exchange.
On November 4th, KNDI received authorization from the United States Environmental Protection Agency for two of its EV models, clearing them for commercial sale in the country. However, KNDI currently faces the threat of being delisted from the US market, as the US House of Representative passed a Holding Foreign Companies Accountable act this month. While President Donald Trump is yet to sign off on the bill this law threatens the growth of Chinese stocks in the US exchanges. Chinese stocks can be delisted in the US if they do not fall under the supervision of the Public Company Accounting Oversight Board.
KNDI has a 10% stake in the newly launched ride sharing company Zhejiang Ruiheng Technology Company. On October 22nd, KNDI entered into a strategic cooperation agreement with Zhejiang State Electric vehicle Service Company, one of the largest state-owned companies in the world.
KNDI’s revenues declined 40.9% year-over-year to $18.70 million in the third quarter ended September 2020. EV parts sales fell 67.4% from the year-ago value to $8.40 million, and the company reported a net loss of $1.50 million over this period, representing a loss per share of $0.03.
Analysts expect KNDI’s EPS to remain negative for this quarter, as well as next year. The consensus revenue estimate of $77.60 million for the current year indicates a 42.8% decline from the year-ago value.
KNDI gained 83.7% year-to-date, owing to the rally in EV stocks. However, following its declining financial results and potential lawsuit, the stock declined 7.5% in the past month.
It is no surprise that KNDI is rated “Sell” with an “F” in Buy & Hold Grade, “D” for Trade Grade and Peer Grade, and “B” for Industry Rank. It is currently ranked #64 out of 115 stocks in the China industry.
Electrameccanica Vehicles Corp (SOLO)
SOLO is a relatively new EV company that develops single-seater vehicles for multipurpose usage. It began commercial production of its flagship three-wheeled SOLO EV for single riders in August this year. The company is also planning to launch a utility and fleet version of SOLO EV, which is expected to be available by early 2021.
SOLO selected Arizona and Tennessee as two states for SOLO EV US assembly facilities and engineering technical centers. This allows the company direct access to the United States EV markets without any trade barriers such as tariff expenses, ensuring higher returns for shareholders.
On October 29th, SOLO announced the opening of six 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 were presented in the Los Angeles Ride and Drive press event. The vehicles are expected to be available for commercial sale by next year.
SOLO’s revenue has increased 50% year-over-year to C$0.30 million in the third quarter ended September 2020. The company generated a net loss of C$14.90 million over this period.
However, SOLO has reported negative net income and EPS for the trailing 12-months but gained 256.7% year-to-date. Despite having generated losses for the past year and not having any vehicle in the market, the company is currently trading at sky high valuations, making it an extremely speculative investment. In terms of trailing 12-month price by sales, SOLO is currently trading at 626.74x, which is 50,443.5% higher than the sector average of 1.24x.
Analysts expect SOLO’s EPS to remain negative till 2021. Moreover, the consensus EPS estimates for the upcoming two quarters indicate a steep decline year-over-year. Also, SOLO missed the street EPS estimates in three out of trailing four quarters. The consensus revenue estimate of $640,000 for the current year indicates a slight improvement year-over-year.
SOLO is rated “Sell” with a “D” for Trade Grade, Buy & Hold Grade and Peer Grade. It is currently ranked #30 in the Auto & Vehicle Manufacturers industry.
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NKLA shares were trading at $18.07 per share on Wednesday afternoon, down $0.85 (-4.49%). Year-to-date, NKLA has gained 75.10%, versus a 15.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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