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There was a significant divergence in the fortunes of electric vehicle (EV) stocks in 2023. While Tesla (TSLA) has more than doubled in the year, many others - like Lucid Motors (LCID), Nikola (NKLA), Fisker (FSR), and Polestar (PSNY) - fell to record lows, albeit at different points throughout the year.
We also had a new EV listing in the form of VinFast (VFS), and the Vietnam-based company quickly gained “meme status.” VFS soared after its initial listing in August, and printed as high as $93 – which gave the startup EV company a market cap of over $200 billion. That exceeded the combined market caps of Ford Motor (F), General Motors (GM), and Volkswagen (VWAGY).
This was also the year when the “demand” question came to the forefront, and multiple players - including Ford and General Motors - scaled back their EV production and slowed the pace of investments. Even the formidable Tesla has alluded to demand not being as strong amid the uncertain economy, and the company is proceeding cautiously on its upcoming Mexico factory.
EV Industry Undergoes Turmoil in 2023
The EV price war also continued unabated, with Tesla cutting its cars' prices multiple times, most recently in October. Other players also joined the price war, and cut prices to keep their models competitive in what’s looking like an increasingly crowded market.
The lethal combination of tough capital market conditions, execution woes, demand slowdown, price wars, and perennial losses took their toll on startup EV companies. Looking forward to 2024, the EV industry churn should continue as new models hit the markets at a time when dealers are saddled with unsold inventory of electric cars. Given that background, I believe VinFast and Electrameccanica Vehicles (SOLO) are two EV stocks investors should sell in 2023. Here’s why.
VinFast Stock Still Looks Overvalued
Despite having fallen sharply from its peak, VinFast still commands a market cap above $17 billion – which, for context, is higher than that of Chinese EV makers NIO (NIO) and Xpeng Motors (XPEV). Even if we account for the “valuation discount” amid the structural deterioration in the valuation of Chinese companies, it’s tough to justify VinFast’s current valuations.
Notably, while VinFast went public only recently through a special purpose acquisition company (SPAC) reverse merger, the company could not raise much cash due to massive redemptions by unit holders. It is therefore reliant on its parent company, Vingroup, which granted it a loan of $955 million with Chairman Pham Nhat Vuong putting in another $291 million in the form of grants.
Also, VinFast cars don’t have great reviews, unlike models from some of the other EV companies - like NIO, Rivian (RIVN), and Lucid Motors. VinFast might have a really tough time competing in the U.S., where Tesla is the market leader - and the Chinese market already looks oversaturated with domestic companies like BYD (BYDDY).
While VinFast is looking at increasing sales in markets like India and Indonesia, these regions are not as lucrative as the U.S., which is the most profitable major automotive market - and China, meanwhile, is the world’s biggest market for new energy vehicles.
Overall, with many other EV companies offering a much better product proposition, and stronger balance sheets available at much lower valuations, I would give VinFast stock a miss – at least, at these prices.
Avoid Electrameccanica Vehicles Stock
Electrameccanica Vehicles is another startup EV name that looks distressed. The stock is trading near its all-time lows, and its market cap is a mere $43 million. It was looking to merge with electric medium-duty truck manufacturer Tevva Motors Limited, but the deal was called off.
The company is now looking to merge with other businesses, and in its December update it said that while it held talks with over 20 candidates since the second week of October, it “recently narrowed the focus of these efforts to just a handful of electric businesses.” SOLO also said that it is “actively exploring a wider variety of ways to leverage our state-of-the-art, 235,000-square-foot manufacturing facility in Mesa, AZ.”
While SOLO once looked like a promising EV startup with a differentiated product, there are not many takers for its three-wheeled vehicles. Things might only get worse as automakers, including Tesla, launch lower-priced EV models. The fact that Electrameccanica Vehicles did a product recall for its SOLO G2 and G3 for model years between 2019 and 2023 did not help bring any credibility to its vehicles.
While the company might still find a merger partner, I would stay away from SOLO stock, given the high risk associated with this distressed EV play.
On the date of publication, Mohit Oberoi had a position in: F , GM , RIVN , XPEV , NIO . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
