The electric vehicle (EV) industry has been one of the best performing industries in navigating COVID-19 pandemic-induced disruptions. This is evident in the Global X Autonomous & Electric Vehicles ETF’s (DRIV) 136.1% gains over the past year.
However, rising optimism about the industry’s growth prospects on the back of clean energy initiatives by governments worldwide has caused the industry to become overcrowded with new entrants that lack sufficient fundamental strength and/or product pipelines to prosper. Investor optimism has nevertheless driven up the shares of the weaker players also.
Because many of these companies have limited market reach and technical expertise, their stocks are now highly speculative investment bets. As a result, some investors are betting against them.
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 this purpose, thereby bypassing a costly and time-consuming traditional IPO process. The company primarily develops Endurance, an electric full-size pickup truck, which is its flagship product.
Though RIDE had a successful stock market debut last year, it has limited market reach and technical expertise needed to make it an attractive investment. With numerous new entrants now entering the EV market, RIDE faces stiff competition from both newly emerged and well-established companies. This, we think, makes it a highly risky investment currently.
Various law firms over the past week have initiated investigations against RIDE for potential violations of the federal securities laws. A report published on March 12 by Hindenburg Research alleges that RIDE has misled investors on both the demand for its vehicle and its production capabilities. The report also alleges that the company's pre-orders were largely fabricated and used as a tool to raise capital and confer legitimacy on the company. The developments have the potential to disrupt the company’s business, which has already been negatively affected by the pandemic.
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 loss per share to increase 80% year-to-year to $1.08 in the fiscal 2021 (ending December 31). The stock has lost 19.1% year-to-date. Currently, 8.7% of RIDE’s floating shares have been sold short.
RIDE’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to 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.
RIDE has a D grade for Quality and Sentiment and an F grade for Growth and Value. It is currently ranked #46 in the 51-stock Auto & Vehicle Manufacturers industry.
In total, we rate RIDE on eight different levels. Beyond what we stated above, we have also given RIDE grades for Momentum and Stability. Get all of RIDE’s ratings here.
XL Fleet Corp. (XL)
XL is a designer and developer of hybrid electric solutions for the commercial and municipal vehicle market in North America. The company manufactures hybrid electric drive systems and data-analytic systems that measure key automotive performance indicators for both new and in-use vehicles.
Last December, XL completed a merger with Pivotal Investment Corporation II (PIC) for a cash payment of approximately $350 million.
A class action complaint has been filed against XL by various law firms this month. The complaint is based mainly on a report by analyst Muddy Waters on Mar. 3. The report alleges that XL materially inflated its sales pipelines and grossly overstated its customer base. The complaint also claims that XL’s technology had been materially overstated and that the company lacks the supply chain and engineers to roll out new products on its announced timelines. This development has the potential to cause several disruptions in the company’s ongoing business operations.
The company’s results for the third quarter, ended September 30, 2020, are far from impressive. XL’s loss from operations has increased 56.9% year-over-year to $6.18 million in the third quarter, ended September 30, 2020. Its net loss has increased 7.8% from its year-ago value to $5.63 million over the same period.
Analysts expect XL to report a negative EPS of $0.09 in the about-to-be reported quarter, ended December 31.The stock has lost 43.6% in value year-to-date. XL has a short interest ratio of 0.62.
XL’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our proprietary rating system. XL has an F grade for both Growth and Value, and a D for Quality and Sentiment. It is currently ranked #66 of 68 stocks in the Auto Parts industry.
Click here to see the additional POWR Ratings for XL (Momentum and Stability).
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RIDE shares were trading at $15.58 per share on Tuesday morning, down $0.64 (-3.95%). Year-to-date, RIDE has declined -22.33%, versus a 6.29% 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.2 Electric Vehicle Stocks Targeted by Short Sellers appeared first on StockNews.com