It was a bad week for electric vehicle (EV) and renewable energy stocks across the board as consumer spending continues to struggle and EV competition heats up. It hasn't helped that interest rates are up and the economic future isn't certain, causing investors to take risk off the table in areas of energy that haven't proven to be profitable.
According to data provided by S&P Global Market Intelligence, shares of Nikola(NASDAQ: NKLA) fell 11.5% this week as of 1:30 p.m. EDT on Friday, Plug Power(NASDAQ: PLUG) was down 13.2%, and Li Auto(NASDAQ: LI) fell 8.3%. And the drop in shares may not be over.
Industry news isn't great
The industry overall had a tough week. Earnings reports from Dollar General and Lululemon showed consumers trading down and potentially slowing their level of spending. Consumers drive the economy, so if there's weakness, it could impact everything from auto sales to electricity demand.
While the Federal Reserve is still expected to cut rates next month, Atlanta's Fed chief said he wants to see more data before cutting rates. That caused the U.S. government's 10-year bond yield to rise about 10 basis points to 3.91% this week, making it more costly to finance projects.
There was also news that Canada will implement a 100% tariff on EV imports from China, which will reduce the market for companies like Li Auto. Trade wars are heating up in the auto industry, and that could make exports harder for companies producing in China.
Nikola's new CCO and money problem
Nikola announced this week that Thomas Schmitt will take over as the company's chief commercial officer, CCO, aiming to bring the company's products to market more efficiently. But there are bigger problems than getting the commercial operations running better.
The company announced a capital raise last week that will bring in an additional $80 million and the potential to increase to a sale of $160 million of convertible notes. As with most capital raises, this could be very dilutive to Nikola long term.
This financial reality that more money is needed to execute the company's vision isn't something the market wanted to hear this week.
A downward spiral has begun
The reality for these companies is their losses are mounting and new funding will be needed to keep the business going. But it's harder to raise money when your stock price falls, which is happening with all three.
This is a downward spiral that is hard to get out of in any economic environment. And if interest rates aren't going to fall sharply and consumers aren't going to demand more EVs and clean energy vehicles, the market may not be as big as a lot of these companies hoped.
The recent bankruptcies of companies like Fisker, SunPower, and Proterra have proven that there's an end to the ability to finance these businesses without making money. And if the financials don't turn around quickly the downward spiral could continue.
Should you invest $1,000 in Nikola right now?
Before you buy stock in Nikola, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nikola wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $720,542!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 26, 2024
Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
