After some positive trends in the EV market, particularly in China, stocks fell sharply this week after earnings were released. It's clear the profitability some investors had hoped for isn't coming soon.
According to data provided by S&P Global Market Intelligence, shares of Li Auto(NASDAQ: LI) fell as much as 13.8% this week, Nikola(NASDAQ: NKLA) dropped 15.2%, Polestar Automotive(NASDAQ: PSNY) was down 15%, and BlinkCharging(NASDAQ: BLNK) outperformed the group, only falling 9.1% at its low. The stocks are down 13.3%, 14.9%, 14.3%, and 8.6%, respectively, for the week as of 2 p.m. ET on Friday.
Earnings and more earnings
The biggest news came from Li Auto, which reported vehicle sales of $5.9 billion in the third quarter of 2024 and a vehicle margin of 20.9%. Total revenue jumped 24% from a year ago to $6.1 billion and beat the $5.9 billion that analysts were expecting, and earnings of $0.38 per share also topped estimates.
But we have seen this earnings season that stocks that ran up ahead of earnings had expected even more than analysts did. Li Auto stock had run up over 50% from its September lows to late October, and this drop was just giving back some of those gains. We also learned today that deliveries for October were 51,443, about flat with the pace of deliveries in the third quarter, so growth may not continue for Li Auto.
At Nikola, the picture is much more bleak. The company shipped 90 trucks in the third quarter, but gross loss was a whopping $61.9 million, and net loss was $199.8 million. Nikola is bleeding cash and has just $198 million on the balance sheet, so a falling stock price will make it harder to get the money it needs to grow.
Any pessimism about the EV market often impacts Polestar, who is hoping to be cash flow break-even by the end of 2025, but doesn't have the scale or brand awareness to give investors much confidence after delivering just 11,900 cars in the third quarter.
When the rubber hits the road
It's also hard to overlook the possible change in policy environment after the election. Tariffs have already been put in place on Chinese EV imports, and those restrictions may increase, no matter which candidate wins. Even the subsidies and tax credits could change depending on the outcome.
A more restrictive trade environment would reduce the opportunity for EV exports from China and may make it more costly to buy EVs in the U.S. Not only does that impact Li Auto, but Blink Charging wants more EVs on the road in order to charge them, and that may be impacted by higher costs.
I think the core problem is the market finally realizing very few of these companies will be profitable in electric vehicles. The auto business isn't highly profitable for structural reasons that the addition of EVs doesn't change. And that's why I'm not buying the dip in EV stocks this week.
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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.
