Shares of electric vehicle (EV) stocks jumped on Wednesday but not all of the gains stuck. The biggest reason investors are bidding up shares is positive earnings reports, but it's not all good news.
Shares of Rivian (RIVN 6.10%) had a wild day, climbing 7.7% at one point only to drop 6.3% later in trading. Shares closed the day down 2.5%. EVgo (EVGO 5.85%) was up as much as 26.5% and closed up 16.5%. Solid Power (SLDP 4.27%) was up as much as 19.3% only to close up 8.3%.
Earnings win the day
All three companies reported earnings that at least initially impressed investors.
Rivian reported earnings that beat expectations, although losses are still unsustainable. Revenue for the quarter was $1.34 billion with a gross loss of $477 million and a net loss of $1.37 billion.
Production guidance for the full year was increased from 52,000 to 54,000 and management said its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss would be $4 billion.
EVgo said that revenue jumped 234% from a year ago to $35.1 million and the company swung to a gross profit of $604,000. But net cash used in operating activities was $7.3 million and operating loss was $36.4 million for the quarter. EVgo hasn't proven that it can be profitable even on what's been installed, but the market is overlooking that in favor of a focus on growth today.
Solid Power reported $6.4 million in revenue and a $15.1 million loss, but investors saw the news the company has delivered cells to BMW to enter automotive qualification as a good sign. With a speculative company like this, development news is the biggest thing for investors to hang their hat on.
Putting earnings into perspective
As much as investors are seeing the good side today, the reality is that losses and cash burn are only getting worse for these companies. You can see below that free cash flow is trending in the wrong direction.
RIVN Free Cash Flow data by YCharts
For today, the market is overlooking these losses and focusing on the growth that's coming in the EV space.
What Rivian's results confirm for now is that demand is high enough to exceed supply for electric vehicles. The company hasn't had to resort to lower prices, although that might change as capacity increases. As more of these EVs hit the market it's companies like EVgo and Solid Power that should benefit.
The challenge has always been making money and these quarterly reports don't answer that. But on a short-term basis, it's speculation that drives stock prices, so EV companies got a boost today.
There are some risks investors should keep in mind though. Higher interest rates have already hit demand for vehicles and EVs could be hardest hit given their price point and increasing supply. Competition from China is also growing quickly, which will impact sales globally, even if it doesn't hurt the U.S. because of high tariffs. And a weak jobs report last week showed that there may be some economic weakness on the horizon. These long-term trends are why I'm not buying EV stocks today, but the market sees it differently.
