In the face of a global semiconductor chip shortage, the electric vehicle (EV) industry is struggling. Because several manufacturers plan production cuts due to the chip crunch, the industry is expected to generate weak momentum in the near term. Therefore, we think it may be prudent to avoid financially weak EV stocks Fisker Inc. (FSR) and Lordstown Motors (RIDE), whose ratings have recently been downgraded by Bank of America. Read on.
Electric vehicles (EVs) are expected to dominate the automotive market eventually as governments across the world implement various measures to reduce carbon emissions. However, recent production and supply bottlenecks have caused some companies in this space to suffer declining financials.
A worldwide semiconductor chip shortage is expected to stifle the EV industry's growth prospects because several players intend to drastically reduce output and close down factories temporarily. Furthermore, intense competition in the EV space as dominant automakers increase their EV investments to capitalize on the industry tailwinds could mar the growth of smaller players.
Thus, we think investors should avoid Fisker Inc. (FSR) and Lordstown Motors Corp. (RIDE), which were recently downgraded by analysts at Bank of America, given these companies’ weak fundamentals and negative earnings growth potential.
Fisker Inc. (FSR)
EV automaker FSR in Manhattan Beach, Calif., is developing a technology-enabled asset-light automotive business model for the automotive industry. In addition, the company is focused on developing eco-friendly EVs. White Space; Value; and Conservative Premium are the company’s three operational segments. Bank of America recently downgraded the stock from ‘Buy’ to ‘Neutral.’
Last month, FSR announced its plan to issue $60 billion of Green Convertible Senior Notes due 2026 in a private offering to eligible institutional buyers. The company plans to use the offering’s net proceeds to finance or refinance one or more new or existing "eligible green projects.”
FSR’s operating expenses increased significantly year-over-year to $53.15 million in the second quarter, ended June 30, 2021. Its operating loss surged substantially from its year-ago value to $53.14 million. The company’s net loss was $46.22 million over this period, while its loss per share grew 700% from the prior-year quarter to $0.16.
The company’s EPS is expected to decline 277.5% year-over-year to $1.51 in its fiscal year 2021. The stock has declined 7.9% in price year-to-date and 37.5% over the past six months.
FSR’s POWR ratings are consistent with this bleak outlook. The company has an overall D rating, which translates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
FSR is rated an F grade for Sentiment, and a D for Stability and Value. Within the D-rated Auto & Vehicle Manufacturers industry, it is ranked #48 of 63 stocks.
To see additional POWR Ratings for Growth, Quality, and Momentum for FSR, click here.
Lordstown Motors Corp. (RIDE)
RIDE is an automobile manufacturer based in Lordstown, Ohio. It develops, manufactures, and sells Endurance, an electric full-size pickup truck for fleet customers. The stock was recently downgraded to ‘Underperform’ from ‘Neutral’ by Bank of America.
Last month, Kyros Law started investigating alleged violations of U.S. securities law by officers and executives of RIDE. Specifically, the law firm is investigating potentially misleading statements made by the company executives to investors.
For the second quarter, ended June 30, 2021, RIDE’s operating expenses increased significantly year-over-year to $110.34 million. Its operating loss came in at $110.34 million over this period. The company reported a $108.20 million net loss, while its loss per share surged 454.6% from its year-ago value to $0.61.
A $2.2 consensus EPS estimate for the current year represents a 114.4% decline year-over-year. Over the past nine months, the stock has declined 63.3%; it has declined 64.8% so far this year.
RIDE’s weak fundamentals are reflected in its POWR ratings. The stock has an overall F rating, which equates to Strong Sell in our POWR Ratings system. The stock also has an F grade for Value, Growth, and Stability. In the Auto & Vehicle Manufacturers industry, it is ranked #61 of the 63 stocks.
In addition to the POWR Ratings grades I have just highlighted, you can see the RIDE rating for Momentum, Quality, and Sentiment here.
FSR shares were trading at $13.10 per share on Monday morning, down $0.40 (-2.96%). Year-to-date, FSR has declined -10.58%, versus a 16.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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