The electric vehicle industry has been one of the best performing industries over the past year. Investor sentiment and government support are key factors that have driven the industry’s performance, as reflected in the Global X Autonomous & Electric Vehicles ETF’s (DRIV) 82.4% gains over the past year. However, the electric vehicle space has become overcrowded with several EV start-ups making their debut on major stock exchanges last year, some without concrete product portfolios or business models in place.

The stocks of these companies are currently riding on bullish market sentiment, absent sufficient fundamental strength to justify their stock price levels. Many start-ups have not even unveiled a prototype of their designs, and hence are highly speculative investment bets. Also, competition in the sector is rising, with major traditional automobile manufacturers entering the EV space. As a result, the lesser-known companies will face a tough road in generating adequate cash flows and profits.

Because many analysts are predicting that the unrestricted growth of EV stocks will lead to a bubble, investors have started pulling back from companies that have  unsustainable growth prospects. EV companies like Lordstown Motors Corp. (RIDE), Fisker Inc. (FSR), Kandi Technologies Group, Inc. (KNDI), and Ayro, Inc. (AYRO) have limited market reach and technical expertise compared to the well-established players. So, we think it wise to say away from these stocks for now.

Lordstown Motors Corp. (RIDE)

RIDE is one of the newest players in the EV industry. It made its  public-markets debut on October 26, 2020. The company entered a reverse merger with Diamond Peak Holdings Corporation for listing purposes,  thereby bypassing the costly and time-consuming traditional IPO process. The company’s primary flagship product is  Endurance, an electric full-size pickup truck.

Though RIDE had a successful stock market debut last year, it has limited market reach and lacks the technical expertise needed to make it an attractive buy. With numerous new entrants now entering the market, RIDE faces stiff competition from both newly emerged and well-established companies. Thereby making it a highly risky investment currently.

RIDE is a pre-revenue company. It reported a loss of $2.60 million in the third quarter ended September 30, 2020, up 1657.3% year-over-year. This was primarily due to its general and administrative expenses.

Analysts expect RIDE’s EPS to decrease 66.7% year-to-year to a negative $1.0 in  fiscal 2021 (ending December 31).

RIDE’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which equates to Strong Sell in our proprietary rating system. RIDE has a grade of D for Stability, Quality and Sentiment and a grade of F for Growth and Value.

We rate RIDE on 8 different components. Beyond what we stated above, we have also accorded RIDE grades for Momentum, and Industry. Get all of RIDE’s ratings here.

The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Fisker Inc. (FSR)

Based in California, FSR made its public debut through a reverse merger in October 2020. The company went public through a sponsorship with Apollo Global Management affiliated Spartan Acquisition Energy Corporation on October 30.

FSR is expected to launch its Fisker Ocean vehicle in the fourth quarter of 2022, and three vehicles by 2025. On December 17, the company announced its partnership with auto supplier Magna International to supply the vehicle platform and build its Ocean SUV. It plans to launch its debut EV Ocean with autonomous driving features, integrated through the Fisker Intelligent Pilot.

Like its peer, RIDE,  FSR is also a pre-revenue company. It has neither engaged in any significant operations nor generated  operating revenue. Its only activities from inception through its IPO is related to its formation. For the three months ended September 30, 2020, FSR had a net loss of $3.25 million, compared to ae year-ago net profit of $2.04 million, which consisted of investment and interest income held in the Trust Account.

Analysts expect FSR to report negative EPS of $0.06 in the about-to-be reported quarter ended December 31, 2020. They further expect FSR’s EPS to decline 29% this year. It seems less likely that the company will generate any revenue this year, since no launch of any of its electric vehicles is scheduled. Hence, we believe it will take some time for the company to become profitable.

The stock has gained 47.5% over the past three months. However, the company does not have adequate financials to justify this price gain  because it is still in the design and production phase and has yet to launch a vehicle in the market.

FSR’s poor prospects are also apparent in its POWR Ratings. The stock has an overall rating of F, equating to Strong Sell in our proprietary rating system. FSR has a grade of F for Value, Quality and Sentiment.

The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Click here to see the additional POWR Ratings for FSR (Growth, Momentum, Stability, and Industry).

Kandi Technologies Group, Inc. (KNDI)

KNDI is a China-based company that is engaged principally in the development, production and distribution of electric vehicle (EV) products, EV parts and off-road vehicle products. The company operates four business lines – the development and sale of pure electric automobiles, electric vehicle parts, intelligent battery swapping systems, and all-terrain vehicles.

A class action lawsuit was filed against KNDI by various law firms over the past couple of months. The plaintiffs allege that KNDI has artificially inflated its reported revenues through undisclosed related party transactions and had relationships with key customers that indicated the lack of arm’s-length transactions with KNDI. This lawsuit has created  some instability and disruption in the normal functioning of the business, which was already affected by COVID-19 conditions .

In November, short-seller firm Hindenburg Research released a scathing report that accused the company of faking sales to raise $160 million from U.S. investors. In that report, the firm found that almost 64% of KNDI’s sales over the last year have been to undisclosed related parties. A day later, KNDI issued an initial response to the allegations, saying it believed the report “contains numerous errors, misstatements of historical facts, inaccurate conclusions, and superfluous opinions.”

KNDI’s net revenues have decreased 40.9% year-over-year to $18.70 million in the third quarter ended September 30, 2020. This was due primarily  to a decrease in electric vehicle parts sales by 67.4%. The company reported a net loss of $1.5%, up 112.1% from the year-ago value.

A consensus revenue estimate of $77.60 million for the fiscal 2020 ending December 31 represents a 42.8% decrease year-over-year. Though the stock has gained 113.8% over the past year, it is currently  trading 51.2% below its 52-week high of $17.45, indicating short-term bearishness.

KNDI is rated D, which equates to Sell in our POWR Ratings system. KNDI has a Stability Grade of F and Value Grade of D. It is currently ranked #79 of 87 stocks in the China industry. This industry is rated C.

The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Click here to see the additional POWR Ratings for KNDI (Growth, Momentum, Sentiment, and Quality).

Ayro, Inc. (AYRO)

Texas-based AYRO is a designer and manufacturer of purpose-built, automotive-grade electric vehicles. The company specializes in light-duty trucks designed for commercial use and urban commutes covering short distances. Founded in 2015, AYRO went public through a reverse merger with DropCar on May 29, 2020. Before making its market debut, AYRO undertook a reverse 1-for-5 stock split.

In late November, AYRO raised $10 million through a direct offering of 1.65 million shares to Carnegie Hudson Resources. The company also issued approximately 2.06 million stock warrants in the name of Carnegie Hudson in two tranches, exercisable in six months and five years, respectively. AYRO intends to use the proceeds of this offering for working capital and general corporate purposes.

Despite these developments, however, the company’s results for the third quarter ended September 30are far from impressive. Its gross profit decreased 2.3% year-over-year to $61,983, while its adjusted EBITDA decreased 74.8% from the year-ago value to a negative $2.09 million. The company reported a net loss of $2.68 million, up 25.2% year-over-year, yielding a loss per share of $0.13.

The stock has gained 60% over the past six months but is currently  trading 35.1% below its 52-week high of $10.60, indicating solid short-term bearishness.

AYRO’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, which equates to Sell in our proprietary rating system. AYRO has a Stability Grade of F and Sentiment Grade of D.

The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

We also have given AYRO grades for Value, Growth, Quality, Momentum, and Industry. Get all AYRO’s ratings here.

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RIDE shares fell $0.08 (-0.32%) in after-hours trading Tuesday. Year-to-date, RIDE has gained 23.43%, versus a 2.05% rise in the benchmark S&P 500 index during the same period.

About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...

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