It was another wild week for electric vehicle (EV) stocks as the market swung between fear and greed. Automakers are still struggling with weak demand and falling margins, but some suppliers are seeing a brighter future as interest rates decline.
Li Auto (LI 1.73%) was the big loser this week, falling as much as 19.6%, according to data provided by S&P Global Market Intelligence, and closing the week down 19.2%. But not everything was down as Solid Power (SLDP 8.05%) shares jumped as much as 17.4% and ChargePoint (CHPT 4.12%) stock was up 10.1%. Shares of the two companies closed the week up 13% and 3.6%, respectively.
NASDAQ: LI
Key Data Points
EV demand sags
Shares of Li Auto fell in large part due to the company announcing a drop in demand for vehicles. Management said lower order intake led them to reduce first-quarter 2024 delivery guidance from 100,000 to 103,000 vehicles to a range of 76,000 to 78,000.
This came at the same time Fisker warned it may need to find a buyer or financing options to survive as a going concern.
Over the last few weeks, we have seen Li lower guidance, a price war in China that's impacting BYD and Tesla, and Rivian announcing the delay of its Georgia plant. There's clearly a trend of demand not keeping up with supply, which is why margins are down and stocks are falling.
Suppliers see upside
ChargePoint had a great start to the week only to see shares fall on Friday in part because the CFO sold shares to cover tax obligations.
The reason ChargePoint and Solid Power were up was in part because investors think the Federal Reserve will lower rates multiple times this year after the latest Fed meeting. Interest rates had risen in 2024 as investors feared rate cuts would be put off, but for now that speculation has been put aside.
NYSE: CHPT
Key Data Points
The 10-year government bond rate has fallen 11 basis points in the past month and dropped five basis points on Friday, which could help make it less costly to buy a vehicle. And with demand in question, any sign of more affordability would be good for EV stocks.
While individual automakers may struggle because supply has outpaced demand, the EV industry is growing, and that means the need for more chargers and batteries. That's the case for ChargePoint and Solid Power this week, despite their mounting financial losses.
Uncertainty for the EV market
The question for this year will be how much these companies can grow and whether or not they'll be profitable anytime soon. Li Auto's guidance reduction of nearly 25% this late in the quarter is a shocking admission that demand isn't as high as a lot of investors think for EVs right now. And margins were already falling across the industry before this announcement.
I think the EV industry is in for a rough year, and not all companies will survive. Fisker has said it needs a cash infusion, and it's not the only one burning more cash than it has on hand. Investors need to beware that these are manufacturing companies that will struggle when demand falls well below supply, which is where we're headed in 2024.
