June 2024 was a rough month for unprofitable electric vehicle (EV) stocks. We saw Fisker file for bankruptcy with a plan to liquidate assets, not restructure in hopes of keeping the business alive. This was a warning for the companies in public markets that are unable to fund themselves long term.
According to data provided by S&P Global Market Intelligence, Nio's (NIO +0.09%) shares fell 22.8% in June, Nikola (NKLA +0.00%) fell 46.7%, and Chargepoint (CHPT +1.46%) fell 10.1%. If conditions don't improve soon, the fall may not be over.
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The problem facing EV companies
There was a lot of excitement about EV companies during the pandemic. But there wasn't much profit to back up the valuations companies got in the market.
That's unsustainable long term, and over the last year, the market has demanded a path to profitability in the foreseeable future. You can see from the chart below that none of these three companies are profitable or trending in that direction.
CHPT Net Income (TTM) data by YCharts. TTM = trailing 12 months.
This becomes a problem as stock prices fall because financing options dry up. Debt markets become more expensive, and a dilutive stock offering becomes harder and more dilutive the lower a stock goes. Once the negative sentiment starts, it's a downward spiral.
No path to profitability
As more EV companies face more competition, seeing a path to profitability becomes harder. Nio's deliveries were down a modest 3.2% in the first quarter of 2024, but revenue dropped 9.1% because of an escalating price war between automakers.
Nikola hasn't really gotten started, with just $32.7 million in revenue over the past year, so it's hard to see profitability in the company's future.
For ChargePoint, the demand for charging and chargers is growing, but if the company can't make money selling chargers today, what hope is there that it will make money selling chargers in the future? And chargers themselves are becoming commodities, so there's not much differentiation for the business.
A difficult path ahead
While EVs may be a growth market, it doesn't mean every company will make money. Fisker found that out the hard way, but so are other companies. There's not enough demand to go around for everyone in the EV market, and when manufacturing capacity is built by one company, it doesn't disappear if someone fails. The overcapacity problem will live on.
This will be a fundamental problem in the EV and charging markets for years to come.
The result is companies competing more and more on price, which is great for consumers but terrible for the economics of manufacturing companies and suppliers in the market. That's ultimately what each of these companies are.
There will continue to be volatility in the EV market, but the downward trend for fundamentals likely means stocks will also move lower over time. It's unclear who will win in EVs long term, but money-losing companies will likely struggle to gain footing. And if the market loses confidence in any of these stocks, the downward spiral could begin like it did for Fisker.
