What happened
Fear of a weaker economy is making its way to the electric vehicle (EV) industry today and that's causing a major sell-off in EV stocks. Lucid Group (LCID 0.41%), Rivian Automotive (RIVN 6.10%), and ChargePoint Holdings (CHPT 0.79%) are all dropping big and this comes just before their earnings season.
Shares of Lucid fell as much as 10.2% today. Rivian was down 6.2%, and ChargePoint was down up to 6%. The stocks are down 9.5%, 5.3%, and 5.4%, respectively, as of 1:15 p.m. ET.
So what
Two earnings reports this morning are pointing to slower consumer spending. Walmart said it expects same-store sales to rise 2% to 2.5%, below expectations of 3% growth. Home Depot's revenue rose just 0.3% and the company expects 2023 revenue to be flat.
On top of a potentially weak consumer spending environment, interest rates are rising sharply today, which makes borrowing money for a new vehicle more difficult. Ten-year government bonds in the U.S. rose 14 basis points today to 3.95%, Canadian yields rose 12 basis points to 3.41%, and Mexican bonds jumped 24 basis points to 9.38%.
If consumers are feeling pressure and interest rates continue rising it could significantly damage the demand for the expensive electric vehicles that Lucid and Rivian make. Lucid already announced a drop in reservations last quarter and that trend may continue.
Fewer electric vehicles on the road would mean less demand for chargers, which is why ChargePoint is down. And higher rates would be a drag on the business as well.
Now what
Lucid reports earnings after the market closes tomorrow and Rivian reports on Feb. 28, so it won't be long before investors hear how their sales are going and how much demand there is early in 2023.
The bigger problem is that all three companies are burning cash at an unsustainable level and falling stock prices give them fewer ways to raise funds.
RIVN Net Income (TTM) data by YCharts
The market will likely be volatile for growth and EV stocks for the foreseeable future because there are multiple factors pulling the companies in different directions. Demand for EVs is growing, but the Federal Reserve is also trying to slow the economy to ease inflation and consumers are reacting by spending less. Companies like Rivian and Lucid feel the brunt of that.
What's working in these companies' favor is that any economic weakness in 2023 will likely be at a time when both Lucid and Rivian are constrained by production. If they can ramp up production effectively and come out in a stronger economy with a profitable product they'll be well positioned. That's the bullish investment thesis, anyway.
ChargePoint may have more challenges. It's serving a commodity (electricity) into a highly competitive charger market and it's still losing money. I don't see the future getting brighter for charging stocks, even if EVs keep selling at increasing rates.
Today, EV stocks are feeling the pain from the market's fears about spending and interest rates. But the long-term picture hasn't changed and the market's sentiment can change tomorrow. I'm not changing my investment thesis, but earnings will be important for all three companies.
