The global electric vehicle (EV) industry moved steadily into the spotlight in recent years with significant government initiatives worldwide. And although the industry has significant growth potential over the long term, there are a few short-term challenges before it.

The ongoing global semiconductor chip shortage has significantly hampered the production lines of many established players in this space. Furthermore, because the EV space is getting crowded with new entrants, many dominant players are losing market share.

These factors, along with overvaluation concerns, are motivating some investors to rotate away from EV stocks. This is evident in  the Global X Autonomous & Electric Vehicles ETF’s (DRIV) 6.5% loss over the past three months. Shares of leading EV players Tesla, Inc. (TSLA) and NIO Inc. (NIO)  tumbled more than 7% last week. And we think the condition of the industry currently may lead to further decline in these stocks in the near term.

Click here to checkout our Electric Vehicle Industry Report for 2021

Tesla, Inc. (TSLA)

TSLA deals in energy generation and storage systems in the United States and internationally. The company operates in two segments, Automotive, and Energy Generation and Storage. Its  Automotive segment offers electric vehicles and sells automotive regulatory credits, while its  Energy Generation and Storage segment market  solar energy generation and energy storage products through a network of channel partners.

In January, TSLA’s latest mid-size SUV, Model Y, received a five-star safety rating in every category from the National Highway Traffic Safety Administration (NHTSA). The car is built  to manage crash energy very efficiently, reducing impact trauma  on the vehicle and its occupants. Providing a high level of safety and  being accredited with an NHTSA  rating should increase consumers’ confidence  in the Tesla brand and the car.

TSLA’s revenues decreased 3.3% sequentially to $10.39 billion in the first quarter, ended March 31, 2021. Its total operating expenses increased 70.5% from its year-ago value to $1.62 billion. Furthermore,  the company’s cash and cash equivalents declined 12.3% to $17.72 billion at the end of the period.

A $4.53 consensus EPS estimate for 2021 indicates a 102.2% improvement year-over-year. The $49.25 billion consensus revenue estimate  for the current year indicates a 56.2% increase year-over-year. TSLA’s stock has gained 267.1% over the past year. However, the stock declined 9.9% last week.

TSLA’s uncertain fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.

The stock has an F grade for Value, and a D grade for Stability. Among the 53 stocks in the Auto & Vehicle Manufacturers industry, it is ranked #38.

In total, we rate TSLA on eight different components. Beyond what we stated above, we have also given TSLA grades for Quality, Growth, Momentum and Sentiment. Get the rating here.

NIO Inc. (NIO)

NIO deals in smart electric vehicles in Mainland China, Hong Kong, the United States, the United Kingdom, and Germany. The company offers five, six, and seven-seater electric SUVs, as well as smart electric sedans. It is also involved in the provision of energy and service packages to its users.

Last month, NIO unveiled its Power North Plan, which stated that in three years it will deploy a total of 100 Power Swap stations, 120 Power Mobiles, 500 Power Charger stations with over 2,000 Power Chargers, and over 10,000 destination chargers in eight provinces and autonomous regions. Although the plan is in alignment with transitioning the consumer market to electrical vehicle users, the huge investment could significantly increase the company’s expenses.

The company’s net loss came in at RMB 354.6 million ($55.04 million) for the first quarter, ended March 31, 2021. Also,  its non-GAAP loss from operations came in at RMB199.44 million ($45.2 million) for this period. Also, it reported a RMB3.14 (US$0.48) loss per share. NIO’s EPS is estimated to decrease 0.2% over the next five years. The stock lost 7.2% last week.

NIO’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our POWR Ratings system. NIO has an F grade for Sentiment and Stability, and a D grade for Quality. Of the 76 stocks in the F-rated China industry, it is ranked #70.

Click here to see the additional POWR Ratings for NIO (Momentum, Value and Growth).

Click here to checkout our Electric Vehicle Industry Report for 2021