Electric vehicle upstarts had a rough day on Tuesday as investors sold off the entire industry. Not only are there broad headwinds like higher interest rates and more competition, but there are now some company-specific concerns to worry about.
Shares of Canoo(NASDAQ: GOEV) fell as much as 5.6% today, Rivian(NASDAQ: RIVN) dropped 6.7%, and QuantumScape(NYSE: QS) was off as much as 5.5%. Shares of the stocks were down 2.8%, 6.4%, and 4.8%, respectively, at 3:30 p.m. ET.
Bad signs for EV stocks
It started with bad news from Fisker after the market closed on Monday; it announced its chief accounting officer had left the company after just two weeks on the job. This at least caused investors to wonder if there are red flags we don't yet know about at Fisker and if that will spread to EV stocks more broadly.
Sales data has also been less than impressive. According to data compiled by Argonne National Laboratory, plug-in electric vehicle sales dropped by over 12,000 units month over month in the U.S. to 91,537 in October. This was the lowest level of sales since March 2023.
Falling sales for a single month should be taken with a grain of salt, but this is with the backdrop of falling demand for vehicles overall, EV capacity increasing, and price cuts across the EV industry. It looks like supply is going to be higher than demand for the foreseeable future, which will put a lot of pressure on companies' balance sheets.
Interest rates continue to be a headwind, although there weren't any major changes today. Rates in Brazil and Mexico rose 9 basis points and 6 basis points, respectively, but were flat in the U.S.
The worst is yet to come
We continue to get worrying data about how consumers are spending in the current environment. Not only did Tesla's management discuss headwinds at length during its conference call, but data is now backing up that sentiment.
Individual companies face the challenge of high capital expenses to ramp production, which needs to ramp because current production isn't enough to pay for operation costs. So, the supply problem gets worse and prices go down, leading to more losses.
The EV industry is already bleeding cash and Canoo, Rivian, and QuantumScape don't have the money to last forever.
GOEV Cash and Equivalents (Quarterly) data by YCharts
I think the broad sell-off is just a sign that investors are taking a risk-off approach to all electric vehicle companies that haven't reached scale yet. Battery developer QuantumScape is a company that's downstream of that but faces the same financial pressures as it continues to run low on cash and needs more financing to stay afloat.
Consumers aren't spending like they once were, and that'll hit EV companies hard in the next year. That's why I'm staying out of these stocks right now.
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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
