September 30, 2023

Rivian Breakout extends the break in EV stocks

(Bloomberg) — Investors are showing willingness to give retired EV stocks another chance, but this time they’re more discerning when it comes to company performance.

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A divide is emerging in an industry whose heyday of lavish investors turned startups into billion-dollar companies in a matter of weeks. Rivian Automotive Inc. and Lucid Group Inc. beat gains in the S&P 500 Index this year, while once-prominent and much-hyped EV startups like Faraday Future Intelligent Electric Inc., Workhorse Group Inc., Nikola Corp. and Canoo Inc. have seen double-digit declines.

“We will likely see execution and profitability become the more dominant factors in electric vehicle manufacturing going forward,” Brian Mulberry, client portfolio manager at Zacks Investment Management, said in an interview. “The new players in this market will have to show a clear path to profitability, and task number one will be to drive a consistent level of units produced and sold.”

Rivian, whose recent record nine-day rally added $11 billion to the company’s market value, has taken the biggest steps in that direction. It reported strong second-quarter production numbers, began supplying Europe with the electric vans it makes for Inc., and reiterated its plan to build 50,000 electric cars this year. Despite the recent performance, meme share is still down about 86% from its 2021 peak.

Meanwhile, Lucid struck a deal to supply EV parts to British automaker Aston Martin Lagonda Global Holdings Plc. Both companies share a large mutual lender in Saudi Arabia’s public investment fund, giving them safety nets in a capital-intensive industry also facing the threat of a global recession.

On the other hand, many early entrants who were once investor darlings have run into hurdles that have been insurmountable for some.

Lordstown Motors Corp. – which was once lauded by former US President Donald Trump for saving auto industry jobs, and which had an equity capital of $5 billion as of early 2021 – filed for bankruptcy last month, after a deal with Foxconn Technology Group was closed failed. Workhorse scrapped its flagship electric van and delivered just 33 units of W4 CC – a cab chassis – in 2022.

Nikola – whose market cap was once that of Ford Motor Co. overshadowed – struggles to keep its share price above the Nasdaq minimum requirements to remain listed.

All in all, it’s quite a turn since the 2020-2021 boom, when many of these EV stocks rose to prominence, riding a stratospheric rally in the shares of the stalwart Tesla Inc. However, following the market-wide sell-off in 2022 and concerns about high inflation, an economic slowdown and central bank tightening policies, investors are more wary of speculative growth stocks.

“We are seeing a lot more discipline in technology investing in general,” Ivana Delevska, chief investment officer at SPEAR Invest, said in an interview. Still, Delevska noted that the setup for EV stocks has improved lately as car sales hold up.

Indeed, EVs have a lot of appeal to investors as the industry is on the brink of major change. According to Bloomberg New Energy Finance estimates, EVs will account for 75% of all global passenger car sales by 2040, up from 14% in 2022.

At the same time, the emergence of companies targeting other parts of the EV ecosystem – such as battery manufacturers, battery metal miners, chipmakers and charging station operators – has provided investors with the opportunity to participate in the EV trend without a high premium or too much risk to take. It has made the as yet unproven EV makers look even more unappealing.

“It’s a good alternative to investing directly in ‘start-up’ manufacturers,” said Zacks’ Mulberry, because despite their inherent risks, the “road to strong cash flows and profitability is a much shorter one.”

Tech card of the day

The shares of Activision Blizzard Inc. shares rose 10% on Tuesday to $90.99, narrowing the gap to Microsoft’s $95-per-share offer after a U.S. judge gave the green light to the deal. Investors are clearly more encouraged about the prospects of closing the deal following the court ruling, which also prompted UK regulators to halt their process over the proposed $69 billion takeover.

Top tech stories

  • A China-based hacking group intending to carry out espionage breached a series of email accounts linked to government agencies in Western Europe, according to Microsoft.

  • The U.S. Federal Trade Commission is set to appeal a federal judge’s ruling against the agency’s bid to block Microsoft’s acquisition of Activision Blizzard, according to a person familiar with the case.

  • China’s ownership of TikTok is fueling more criticism ahead of Taiwan’s presidential election in January.

  • Arm Ltd., the chip designer backed by SoftBank Group Corp., is in talks with Nvidia Corp., according to the Financial Times. to join a group of potential investors to anchor the IPO.

  • According to CNBC, one of Google’s first and oldest employees will be stepping down as executive management following a shakeup from the company’s cloud division.

–With help from Subrat Patnaik and Yiqin Shen.

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