What happened
Shares of the newer up-and-coming electric vehicle (EV) hopefuls Lucid Motors (LCID 0.41%), Rivian Automotive (RIVN 6.10%), and Nikola (NKLA 7.23%) were falling Monday, down 4.9%, 4.5%, and 11.6%, respectively, as of 12:50 p.m. ET.
Only Lucid Motors had material news today, unveiling a price cut on some of its newer sedan models; however, that news likely spurred caution among electric vehicle investors generally, as it showed the price war sparked by higher interest rates and Tesla's price cuts earlier this year are beginning to bite just about everyone in the space.
So what
On Monday, Lucid announced aggressive price cuts for its Lucid Air sedan models, as part of a promotional event through Aug. 31.
The cuts were fairly aggressive, with a $5,000 discount offered on the most affordable Air Pure, which now goes for $82,400, a large $12,400 discount on the Air Touring, which goes for $95,000, and a huge $28,400 discount on the Air Grand Touring to an MSRP of $125,600. In addition, Lucid is offering exclusive leasing and financing options through the end of August on top of the price cuts. Of note, while Lucid reports earnings today, it had already disclosed deliveries for the second quarter last month that were well below the analyst consensus.
It's no surprise that Lucid's closest peer, Rivian, which sells high-end electric SUVs, fell in sympathy. Rivian actually reports on Tuesday, but last week, the stock received a downgrade from investment firm Cantor Fitzgerald. In that downgrade to a neutral rating, analyst Andres Sheppard noted tougher competition in the premium EV truck space, not only from Tesla and its upcoming Cybertruck, but also legacy players General Motors and Ford Motor Company.
While Lucid's sedans and Rivian's trucks are different models, each are going after a relatively premium segment of the EV market. And with higher costs for components amid last year's supply chain snarls and higher interest rates pressuring consumers, it appears these upstart original equipment manufacturers (OEMs) may see margins squeezed as they try to get to scale.
Finally, Nikola was plunging today as well, but it's more of an idiosyncratic story, playing in the heavy-duty EV truck space. The stock had a roller-coaster week last week after the company released its earnings results last Thursday. On the positive side, the company posted better-than-feared net losses and revealed it would spend less cash than thought on its production ramp-up. On the negative side, the company missed on revenue, and CEO Michael Lohscheller announced he would be stepping down due to a family health issue.
The stock plunged 26% on Friday, and followed through with a tough sell-off today. Even though Nikola plays in the heavy duty truck space, Lucid's announcement today likely isn't helping matters, sentiment-wise.
Image source: Getty Images.
Now what
While the growth prospects of the electric vehicle sector are quite enticing, investors would do well to heed Warren Buffett's warnings on the automotive industry. A few years ago, Buffett spoke about how at the beginning of the 20th century, it was obvious that automobile sales were going to take off. And yet, even though more than 2,000 companies eventually entered the auto business over time, there were just three major U.S. car companies left by 2009.
In the auto business, there are high capital investments required, but because cars are a high-ticket item, customers can be finicky and pull back when economic conditions become tough, and competition can eat away at margins. Therefore, industry growth isn't enough for stocks to be winners; in order to survive, auto companies also need some sort of competitive advantage.
While there is a lot of hope behind Lucid, Rivian, and Nikola, these new EV companies are so early in their production ramp-ups that it's unclear if they will achieve such an advantage. Moreover, since they're unprofitable at the moment, they have been especially hurt by higher interest rates and softening consumer demand.
I'd continue to remain cautious on the EV space in terms of investing in individual OEMs. There's still too much uncertainty hanging over the industry, and today's news is just another bit of evidence to support that cautionary stance.
