Rising concerns regarding climate change, increasing support from governments and international agencies, and favorable market sentiment are some of the reasons contributing to the electric vehicle (EV) industry boom. While many companies are capitalizing on this trend to pump up their sales numbers, many start-ups are surging purely on investor optimism, leading to an EV bubble. If left unchecked, this speculation could lead to a Dotcom Bubble 2.0.
While Nikola Corporation’s (NKLA) conspicuous market debut and triple-digit gains first brought attention to a potential EV bubble, it did not stop there. Companies such as Workhorse Group Inc. (WKHS) and Electrameccanica Vehicles Corp (SOLO) have rallied in triple-digits over the past year, without adequate sales or earnings to back up the price gains. In fact, both companies have yet to generate profits.
While the EV market boom might make these stocks look appealing based on their perceived growth potential, we believe it is advisable to wait for these companies to launch their products commercially and turn a profit before investing in them. .
Workhorse Group Inc. (WKHS)
WKHS produces high performance electric vehicles for commercial and utility transportation across the U.S. . It also designs unmanned aerial vehicles purpose built for interstate package delivery. The company is an original equipment manufacturer of commercial medium-duty trucks.
While WKHS has received multiple purchase orders from different businesses over the last year, it has yet to launch its vehicles in the market. The company has not even unveiled its electric vehicles so far, for which it is currently in the initial manufacturing stages. Moreover, the company has lowered its production guidance of 300- 400 vehicles for the fourth quarter ended December 31, 2020, citing COVID- related supply chain disruptions.
WKHS submitted a “Type Certification” application with the Federal Aviation Administration for its Horsefly Unmanned Aerial System (UAS), on October 28, 2020. However, it still has not received a formal approval from the regulator.
WKHS’ cost of goods sold and selling, general, and administrative (SG&A) expenses increased substantially in the third quarter ended September 30, 2020. Its net loss has increased 631.3% from the year-ago value to $84.10 million.
Analysts expect WKHS’ EPS to decline 350% in the current quarter ending March 31, 2021. Moreover, the company missed the Street’s EPS estimates in three of the trailing four quarters, which is alarming.
WKHS has gained 63.8% over the past six months, owing to investor optimism surrounding the electric vehicle market. However, the stock could retreat if the company fails to deliver on its pre-order commitments. In terms of trailing 12-month Price/Sales, WKHS is currently trading at 2945.57x, which is 219,718.7% higher than the sector average of 1.34x.
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. 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 has selected Arizona and Tennessee as two sites for SOLO EV’s U.S. assembly facility and engineering technical centers. However, while the first shipment of vehicles for assembly arrived in the U.S. in October, their sale in the U.S. has not begun to date. This has caused the stock to decline 7.1% over the past month.
SOLO’s SG&A expenses have significantly increased year-over-year in the third quarter ended September 30, 2020. Its operating loss has increased 12.8% from the year-ago value to C$8.80 million, while net loss has risen 181.1% from the same period last year to C$14.90 million. As a reference, the company has generated only C$0.30 million in revenues over this period.
Despite having generated losses in the trailing 12 months, the company is currently trading at sky-high valuations, making it an extremely speculative investment. SOLO has gained 212.6% over the past year. In terms of trailing 12-month Price/Sales, SOLO is currently trading at 567.09x, which is 42,220.1% higher than the sector average of 1.34x.
Analysts expect SOLO’s EPS to decline 100% in the current quarter ending March 31, 2021. Moreover , the company’s EPS is expected to remain negative over the current fiscal year. SOLO has missed the Street’s EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $140,000 for the about-to-be-reported quarter indicates a 37.6% decline year-over-year.
SOLO’s POWR Ratings reflect this bleak outlook. It has an overall rating of “Sell”, with a “D” for Trade Grade and Peer Grade, and “F” for Buy & Hold Grade. It is currently ranked #29 in the same industry.
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WKHS shares were trading at $25.70 per share on Friday afternoon, down $1.90 (-6.88%). Year-to-date, WKHS has gained 29.93%, versus a 1.69% 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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