What happened
Shares of electric vehicle (EV) and charging stocks traded sharply higher on Thursday as investors moved back into high-growth stocks. There wasn't a lot of specific news about EV companies, but the macro environment continues to get slightly better and the market is reacting by moving into higher-risk assets.
Nikola (NKLA 7.23%) traded as much as 15.5% higher, Canoo (GOEV 2.59%) was up 16.3%, Lucid Group (LCID 0.41%) popped 8.1%, and Wallbox (WBX 4.20%) rose 20.3% at its peak. The stocks were up 8.6%, 7%, 16.3%, and 16.3% higher, respectively, at 3:30 p.m. ET.
Image source: Getty Images.
So what
Macro news about the economy was the first thing that investors were looking at this morning. According to the U.S. Department of Commerce, U.S. gross domestic product rose at a 2% annualized rate in the first quarter, up from a previous estimate of 1.3%. This gives more data to the thought that the economy is not heading into a recession in 2023, which could keep vehicle sales at strong levels. EVs, in particular, have begun facing the prospect of falling demand, which has caused some competitors to lower prices.
Another incremental positive is Lordstown Motors filing for bankruptcy earlier this week after failing to build a profitable business. This takes one competitor off the market.
Wallbox is moving in part because it announced a deal to sell Pulsar Plus chargers at Costco Wholesale starting in July.
Volvo also recently announced it will adopt the North American Charging Standard, which continues to solidify Tesla's plug design as the winning EV plug. This could lead to greater EV adoption because users will have a less confusing buying experience and more charging options.
Now what
As great as it is that these stocks are up, investors should keep in mind that the companies are all burning cash at an unsustainable rate.
NKLA Cash from Operations (TTM) data by YCharts
EV manufacturers are also facing intense competition to move products, resulting in price reductions and falling margins, even for industry leaders. Nikola, Lucid, and Canoo all have a long road ahead to get to any sort of profitability.
On the charging side, I don't see any company having a sustainable advantage. Chargers are a commodity and the plug is now standard as well. This isn't a recipe for great margins for Wallbox.
I think the "risk on" trade today is driving stocks higher more than anything else. And that's not a sustainable driver of valuations long-term. As earnings season approaches, the focus will likely turn to revenue and cash burn, which doesn't look good at any of these companies. I think this is a selling opportunity for investors and it's time to take a little risk off the table.
