What happened
Electric vehicle (EV) stocks jumped across the board this week as investors once again took an optimistic view of the industry's future.
According to data provided by S&P Global Market Intelligence, Lucid Group (LCID 0.41%) is up 30.7%, ChargePoint Holdings (CHPT 0.79%) rose 19.4%, and QuantumScape (QS 5.69%) popped 18.6%. These were the biggest movers, but almost every EV company was up at least 10%.
Image source: Getty Images.
So what
The charging market seems to have settled its plug debate over the last few weeks with even more automakers announcing they will support Tesla's NACS plug. That's caused a flurry of announcements for charging companies, and ChargePoint was one to say it will have NACS chargers available later this year.
Settling on a charger standard could increase EV adoption overall because it takes charging confusion out of the equation and will likely increase charger availability, at least in North America. That's a big reason EV manufacturers like Lucid were up this week, although Lucid is a notable holdout against the NACS standard.
QuantumScape gave an investor presentation on Wednesday and reiterated the advantages its solid-state batteries could have over lithium-ion batteries. But the challenge of cost-effective manufacturing at scale continues to be a challenge. Six commercial agreements indicate there's demand for the solution, so now the work moves ahead to build out supply at competitive prices.
Positive economic data certainly helped the market as well. According to the Commerce Department, U.S. GDP was up 2% in the first quarter of 2023, up from a previous estimate of 1.3%. This gives investors evidence that the economy is handling higher interest rates well and a recession could be avoided.
I think it will take a while to see the true impact of rising interest rates on auto sales, which were artificially low during the pandemic, but this will be something the market watches closely.
Now what
The big move higher this week comes as the operating metrics seem to be getting more challenging for EV companies. Ford, VW, and Tesla have all announced reductions in production this summer for a number of reasons, and prices have also started to come down. That will likely put pressure on margins for every automaker. Investors betting on long-term growth need to balance that with the ability to make money on each vehicle or charger sold.
The challenge can be seen in the chart below. All three of these companies are losing hundreds of millions of dollars per year, and there's no end to the cash burn in sight.
CHPT free Cash flow data by YCharts
I think the pop in shares was overdone this week because those operational challenges are real. It will be a few weeks before earnings season begins and we get final numbers. But in the next few days, we should get production and sales numbers from most automakers, and that's where the rubber starts to hit the road.
