What happened
Investors in the electric vehicle (EV) sector had a bad final month of 2022. Chinese EV maker Nio (NIO 8.72%), battery developer QuantumScape (QS 5.69%), and charging network company ChargePoint (CHPT 0.79%) all dropped more than 20% in December. Nio lost 23.7%, QuantumScape 24.3%, and ChargePoint dropped 23.3%, according to data from S&P Global Market Intelligence. Those poor monthly returns capped off what was an extremely poor year for all three.
So what
The negative investor sentiment for these companies that was in place for much of 2022 accelerated in the final month of the year. Some of that was due to macroeconomic conditions, but some was also specific to these businesses. There is also concern that these stocks have more room to fall in 2023, causing some shareholders to cut losses.
The sharp December declines were likely also partly due to timing. Tax-loss selling is one strategy that probably added to stock sales whether an investor was considering exiting the stock permanently or not. That's because without any near-term catalysts for the stocks, investors were willing to gain the tax advantage from realized losses, thinking that they can re-establish a position later in 2023. One just needs to be sure to understand the wash-sale rule in that case.
Image source: Getty Images.
Now what
One important aspect to that tax strategy includes the lack of any upcoming catalyst for the stock. That thinking came as these businesses continued to struggle as the end of the year approached. In its third-quarter update provided in November, Nio projected sharply accelerating sales for the fourth quarter, representing more than 80% year-over-year growth at the midpoint of its estimate range. But toward the end of December, management slashed its estimate for quarterly deliveries by about 15%.
Much of the reason for that change was specific to its home market in China. Supply chain constraints were exacerbated by the COVID-19 outbreak there along with policies put in place to control it. But supply chains have been stressed globally for much of last year, too.
Those challenges led QuantumScape to effectively push back its timeline for commercialization of its solid-state EV battery technology by about a year into 2025. It also delayed some capital spending as it waited for equipment for its pilot line. The good news is that meant it expects to have ended 2022 with liquidity of more than $1 billion, compared with the prior expectation of $950 million.
Nio ended up beating its lowered vehicle delivery expectations once it reported its final December data. That has helped the stock jump some since the end of the year. But profitability remains a distant goal for all of these names, meaning any investment shouldn't be made with short-term expectations.
