As the struggle in the automotive sector has been increasingly intensifying of late, fundamentally weak stocks NIO Inc. (NIO), Lucid Group, Inc. (LCID), and Rivian Automotive, Inc. (RIVN) have struggled to maintain their profits. So, let’s delve into why these stocks might be avoided.
Hammered by inflation, automakers have been particularly sensitive to the blow because of their transformation plans. According to data from AlixPartners, cited by the Wall Street Journal, the auto industry plans to invest some $526 billion in Electric Vehicles (EVs) by 2026.
However, the wager is made riskier by signs of a possible economic downturn that could weigh on consumers’ willingness to splurge. Moreover, electrifying the car market seems to be getting more difficult.
According to consumer analytics firm JD Power report, for March, 21% of new-vehicle shoppers said they were “very unlikely” to consider an EV, up from 18.9% in February and 17.8% in January due to incessant concerns about lack of charging infrastructure and pricing.
Given this backdrop, the stocks mentioned above might be avoided. These stocks rank in the top 100 stocks on the Robinhood Markets, Inc. (HOOD) platform, a commission-free trading app that is often associated with risky speculative trading.
While some of its members have a long-term mindset, the typical ‘Robinhood investor’ is a short-term trader who usually chases the hottest stocks.
NIO Inc. (NIO)
Headquartered in Shanghai, China, NIO produces and markets high-end smart electric vehicles manufacturer. It provides power solutions, battery swapping services, rapid charging, vehicle internet assistance, and extended lifetime warranties.
In terms of forward Price/Book, NIO is trading at 6.02x, 141.4% higher than the industry average of 2.49x. Likewise, its forward Price/Sales multiple of 1.11 is 31.6% higher than the industry average of 0.84x.
Also, the stock’s trailing- 12-month net income margin, ROCE, and ROTA of negative 29.55%, 49.71%, and 15.12% compare to the industry averages of 4.47%, 10.71%, and 4%, respectively.
For the fiscal quarter ended March 31, 2023, NIO’s gross profit decreased 63.4% year-over-year to RMB621.80 million ($89.82 million). Its adjusted loss from operations widened 193.7% year-over-year to RMB6.02 billion ($868.96 million), while its non-GAAP net loss came in at RMB5.06 billion ($731.72 million), up 190% from the prior-year quarter.
In addition, its non-GAAP loss per share widened 186.9% year-over-year to RMB3.07.
Analysts expect NIO's earnings per share to remain negative in the fiscal year 2023. Shares of NIO have declined 57.4% over the past nine months and 39.8% over the past year to close the last trading session at $8.16.
NIO’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an F grade for Stability and a D for Growth, Sentiment, and Quality. Among the 59 stocks in the Auto & Vehicle Manufacturers industry, it is ranked #50. To see additional ratings (Value and Momentum) for NIO, click here.
Lucid Group, Inc. (LCID)
LCID uses its equipment and factory to design, develop, manufacture, and sell Electric Vehicles (EVs), EV powertrains, and battery systems in-house.
In order to compete in a challenging EV market, on February 9, the company announced its own $7,500 EV credit on the purchase of select Lucid Air Models. However, this is not backed by government funding.
On a full-year basis, LCD only produced 7,180 vehicles last year. Out of which, the company reportedly delivered 4,369 EVs in 2022, which is approximately 60.8% of what it produced.
In terms of forward EV/Sales and Price/Sales, LCID is trading at 13.38x and 14.34x, significantly higher than the industry averages of 1.12x and 0.84x. Also, its forward Price/Book ratio of 5.43 compared with the industry average of 2.49.
For the fiscal first quarter that ended March 31, 2023, LCID’s loss from operations widened 29.2% year-over-year to $772.16 million. Its total costs and expenses increased 40.7% year-over-year to $921.59 million.
The company’s attributable net loss and net loss per share amounted to $779.53 million and $0.43, widening 28.9% and 19.4% year-over-year, respectively. Also, its adjusted EBITDA loss came in at $643.89 million, up 67.8% from the year-ago value.
In addition, the stock’s trailing-12-month gross profit margin and net income margin of negative 171.54% and 286.13% compare to the industry averages of 35.16% and 4.47%, respectively.
Analysts expect the company’s EPS to remain negative in the fiscal year 2023 and is expected to decline by 33% per annum over the next five years. Moreover, it missed the consensus EPS estimates in three of the trailing four quarters.
Over the past nine months, the stock has slumped 58.3% to close the last trading session at $7.28.
LCID’s weak fundamentals are reflected in its POWR Ratings. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Value, Stability, and Quality and a D for Growth and Sentiment. Within the same industry, it is ranked last. Click here to see LCID’s ratings for Momentum.
Rivian Automotive, Inc. (RIVN)
RIVN is a manufacturer of electric adventure vehicles. Its offerings include electric SUVs and passenger pickup vehicles designed for both on- and off-road driving.
In terms of trailing-12-month Price/Sales, RIVN is trading at 7.63x, 796.1% higher than the industry average of 0.85x. Likewise, its trailing-12-month EV/Sales multiple of 1.97 is 74.7% higher than the industry average of 1.13.
RIVN’s trailing-12-month gross profit and levered FCF margins of negative 188.36% and 254% compare to the industry averages of 35.16% and 2.95%, respectively.
For the fiscal fourth quarter that ended March 31, 2023, RIVN’s gross loss increased 6.6% year-over-year to $535 million. The company’s loss from operations and net loss amounted to $1.43 billion and $1.35 billion, respectively. In addition, its net loss per share stood at $1.45 in the same period.
The company’s cash and cash equivalents of $11.24 billion decreased by 2.8% from $11.57 billion for the period ended on December 31, 2022.
Street expects the company’s EPS to be negative in the fiscal years 2023 and 2024. Shares of RIVN have declined 69% year-to-date to close the last trading session at $13.86.
RIVN’s POWR Ratings reflect this weak outlook. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and Quality and a D for Value and Sentiment. It is ranked #54 of 59 stocks in the same industry. To see the other ratings of RIVN for Growth and Momentum, click here.
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NIO shares were trading at $8.09 per share on Wednesday afternoon, down $0.07 (-0.86%). Year-to-date, NIO has declined -17.03%, versus a 7.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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