The alternative energy market is steadily growing with climate change becoming a pressing concern across the globe. New Jersey recently followed the California ban on sale of gas cars, requiring sales to be zero-emission by 2035. Electric vehicle (EV) companies are riding the tailwinds in the sector as more people are shifting toward EVs and clean emission. However, the EV space is starting to get crowded and not all the players in this booming market possess sound fundamentals.

There has been growing excitement among investors about the automotive sector going electric. Global electric car sales for September 2020 witnessed a massive 91% year-over-year growth, primarily due cost and performance enhancement offered by EVs. The skyrocketing performance of EV stocks are also evident from KraneShares Electric Vehicle and Future Mobility ETFs (KARS) 38% gain over the last six months.

However, it could be wise to avoid weaker EV players like Nikola Corp. (NKLA), Workhorse Group, Inc. (WKHS) and Hyliion Holdings Corp. (HYLN) at this moment. These companies have poor prospects and are susceptible to deep pullbacks.

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 as investors are 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 a 11% stake in the company, for the supply of batteries and fuel cells, but the deal with GM is uncertain and under renegotiation.

NKLA is scheduled to announce its third quarter financial results on November 9^th, 2020. The company has not produced any products yet, and doesn’t even possess a manufacturing factory. In the second quarter, the company generated just $36,000 in solar revenues. The company reported a loss of $0.33 per share, compared to the year-ago loss of $0.06 per share. It anticipates starting the production of its Nikola Tre in the fourth quarter of 2021. But analysts expect next year EPS to decline 23.5% year-over-year.

NKLA has lost more than 48% over the past three months to close yesterday’s trading session at $18.84. The company became public in June 2020 and the lock-up period for 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 Trade Grade and Buy & Hold Grade, a “D” for Peer Grade, and a “C” for Industry Rank. It is ranked #19 out of 31 stocks in the Auto & Vehicle Manufacturers industry.

Workhorse Group, Inc. (WKHS)

WKHS designs, manufactures, and sells electric, high-performance, drone-integrated electric vehicles to the last-mile delivery sector. The company’s products include medium-duty trucks comprising a powertrain and chassis. Over the past year, the company garnered approvals from all 50 states making it the only EV delivery licenses for operation nationwide. It has recently begun production of its C-series electric step vans.

WKHS is one of three finalists for a $6.3 billion contract to supply the US Postal Services’ 165,000 vehicles. However, the decision has recently been delayed until the end of the calendar year. Bears followed shortly after short-seller Fuzzy Panda Research released a scathing attack on October 8^th stating that WKHS misled investors as it vies for the USPS’s contract. Fuzzy Panda claims that the company’s vehicles are plagued with issues and that it exceeds the maximum cost guidelines. The firm also said WKHS’s one-time partner, VT Hackney, has already backed out of the bid, due to “critical failures and breakdowns.”

Revenue for the last reported second quarter came in $92,000, increasing 1,572.7% year-over-year. However, the company is still not making profits and reported a loss per share of $1.76 for the quarter. WKHS is sitting on a $2.22 billion valuation on a mere sale of $200,000 in the trailing twelve months. The street expects current year EPS to decline 100% from the year-ago value.

Adding to the concern regarding WKHS’ struggles, late in October, the company submitted its application to the Federal Aviation Administration for its HorseFly Unmanned Aerial System drone. Instead of benefiting from this news, the stock lost nearly 27% in the past month. WKHS has surged 487.2% so far this year and closed yesterday’s trading session at $17.85.

According to the POWR Ratings, WKHS has a “Sell” rating. It also has an “F” for Trade Grade and Buy & Hold Grade, a “D” for Peer Grade, and a “C” for Industry Rank. It is ranked #22 out of 31 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 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 is scheduled to announce its third quarter results on November 12^th. The company has recorded zero revenues to date, but anticipates it will generate $1 million of revenue this year. Its first 1,000-units pre-order comes from one of its strategic partners, Agility Logistics. The company has recently announced a natural gas fueling partnership with American Natural Gas 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 own ticker on October 2^nd and the stock has lost nearly 48% to date. It closed yesterday’s session at $20.56, trading 65% 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 Trade Grade and Buy & Hold Grade, a “D” for Peer Grade, and a “B” for Industry Rank. Within the Trucking Freight group, it’s ranked #16 out of 20.

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NKLA shares were trading at $18.80 per share on Wednesday afternoon, down $0.04 (-0.21%). Year-to-date, NKLA has gained 82.17%, versus a 9.54% 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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