Shares of electric vehicle companies Canoo (GOEV 0.35%), Nikola (NKLA 1.97%), and Lordstown Motors (RIDE -0.92%) were tumbling today after an analyst made comments yesterday indicating that price drops for EVs could be the new normal.
EV stock investors may also be on edge as the Federal Reserve meets today to decide on how it will proceed with interest rate increases to fight inflation. As a result of all of this news, Canoo's shares were down 6.1%, Nikola had fallen 3.7%, and Lordstown's stock dropped 5.3% as of 11:32 a.m. ET.
Morgan Stanley analyst Adam Jonas said yesterday that Tesla's recent electric vehicle price cuts are the result of the company's success in scaling its manufacturing processes and because the company is a leader in the global EV market. Jonas noted that Tesla's vehicle price cuts are a "rational competitive behavior" in light of its strong position in the industry.
While that's good news for Tesla, it's not great for smaller EV start-ups like Canoo, Nikola, and Lordstown. These companies are still trying to find their footing in an increasingly competitive EV landscape and Tesla cutting prices may be an indication of tougher times ahead.
Jonas added that "EV price cuts are not a fad, but a trend" and said that Tesla will set the pricing tone from here on out.
That's especially problematic for these fledgling EV companies. Canoo, for example, is still working on getting vehicle production up and running and, despite getting new orders for vehicles, still hasn't generated any revenue yet. Meanwhile, Nikola fell short of its vehicle delivery goals of between 300 to 500 in 2022 and delivered just 131 instead.
Additionally, Lordstown Motors recently reported its fourth-quarter results that showed the company only sold three vehicles over the three-month period and generated just $194,000 in sales during the quarter -- which was a far cry from analysts' average estimate of $1.9 million in revenue.
Making matters worse for these EV companies is the fact that the Federal Reserve is expected to raise interest rates at its current meeting, scheduled for today. While the increase is expected to be less than in the recent past -- just 25 basis points -- it is still an increase nonetheless.
Higher interest rates have weighed down on growth companies like Canoo, Nikola, and Lordstown because they make the cost of borrowing money more expensive. At the same time, high inflation has caused EV material prices and wages to increase, putting pressure on these companies as they try to ramp up their vehicle production.
Investors should be cautious with Canoo, Nikola, and Lordstown right now. The electric vehicle industry is under significant pressure from both inflation and higher interest rates, and there appears to be no relief anytime soon.
A lower interest rate increase at today's Federal Reserve meeting could be a step in the right direction economically, but it's not going to change the competitive environment for these companies or help them improve their vehicle production.
And with larger EV companies like Tesla enjoying their competitive advantages right now, it could become increasingly harder for Canoo, Nikola, and Lordstown to establish their positions in the market.