While the post-pandemic new normal sparked dramatic interest in the electric vehicle segment, not every participant will likely perform well due to issues like consolidation. Tellingly, the recent dramatic enthusiasm around some highly-shorted EV stocks – in particular, the tickers ARVL and FUV (before its major fall this week) – appears divorced from fundamentals, warranting extreme caution. I am bearish on both stocks.
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Nevertheless, the fact that bullishness toward EV stocks exists isn’t a surprising result. For one thing, the entire sector suffered cataclysmic damage in 2022. From a purely speculative angle, the red ink may offer a discounted opportunity. On a broader level, the benchmark CPI report aligned with expectations, indicating that inflation cooled again in December. Logically, this dynamic suggests that the Federal Reserve may be less aggressive with its monetary policy, going forward.
Moreover, some EV stocks generated such intense bearishness that contrarian traders are willing to take the opposite side of the wager in the hopes of sparking a short squeeze. Essentially, bidding up heavily-shorted shares sparks tremendous pressure among bears, who must return the securities they borrowed to initiate a short position. Thus, by forcing “negative” traders to blink first, the bulls can enjoy massive rewards.
As TipRanks reporter Vince Condarcuri mentioned, short-squeeze attempts can burn pessimists targeting the most embattled of organizations. Still, the trade isn’t as easy as it looks. If it was, everybody would be doing it. In the case of the below EV stocks, most investors should probably steer clear.
Arrival (ARVL)
A British EV manufacturer, Arrival (NASDAQ:ARVL) primarily focuses on lightweight commercial vehicles, and at the moment, ARVL features a short interest of 22.84% of its float (float refers to the number of shares available to trade).
If an investor was looking at EV stocks strictly during this year so far, Arrival would stand head and shoulders above the competition. Year-to-date, the stock is up 150% and was much higher just a few days ago. Of course, just looking at two weeks’ worth of price action would be incredibly deceptive.
Should one examine the trailing-year performance, sobriety would immediately materialize, with ARVL falling nearly 90%. A few token swings higher just don’t make up for prior severe losses.
Fundamentally, competition and, specifically, consolidation represent some of the biggest headwinds for Arrival. Considering both the longer-term and near-term history of the automotive industry, it’s clear that the world doesn’t need that many manufacturers. Over time, EV stocks risk being swallowed whole, with the big dogs dominating the sector.
Financially, Arrival’s main claim to fame is its balance sheet. With a cash-to-debt ratio of 1.4 times, this metric ranks above 67% of the competition. Otherwise, Arrival remains an aspirational, pre-revenue enterprise that continues to lose money. It’s worth reminding everyone that its retained losses stand at nearly $1.7 billion.
Is ARVL Stock a Buy, According to Analysts?
Turning to Wall Street, ARVL stock has a Hold rating based on just one Hold rating. Unfortunately, the stock does not have a price target from the one analyst.
Arcimoto (FUV)
Headquartered in Eugene, Oregon, Arcimoto (NASDAQ:FUV) specializes in what it terms the Fun Utility Vehicle, hence the ticker symbol. A tandem two-seat, three-wheeled EV, Arcimoto’s FUV certainly appears fun to operate. Notably, the stock sports a short interest of 25.9% of its float, making it highly shorted. Better yet, contrarian traders finally decided to take the company out for a spin (until an incident occurred).
While not nearly as impressive as Arrival above, Acrimoto certainly held its own temporarily. Last week, FUV gained nearly 32%. At the time, with EV stocks taking a beating in 2022, embattled stakeholders welcomed the sentiment reversal. Unfortunately, the broader narrative changed dramatically earlier this week.
According to a report from Electrek, in a last-ditch effort to raise funding, Arcimoto “announced the sale of $12 million in stock at just $3 per share.” Predictably, this action cratered FUV stock. After starting the new year so auspiciously, it’s now down 27%.
Financially, it’s difficult to imagine how Arcimoto digs its way out of the hole. About the only conspicuous positive is that the company’s three-year revenue growth rate stands at 170.3%. However, this status will likely change as Arcimoto now struggles against bankruptcy. Therefore, it’s best not to play with FUV and steer well clear of it.
Is FUV Stock a Buy, According to Analysts?
Turning to Wall Street, FUV stock has a Hold consensus rating based one Buy, zero Holds, and one Sell rating. The average FUV price target is $10.00, implying 340.53% upside potential.
The Takeaway: Some EV Stocks Might Not Make It
Although EV stocks represent one of the hottest sectors on Wall Street, the reality is that not everyone in the space will make it. Even with economies of scale, the segment features big-ticket purchases. Therefore, only a few manufacturers have the right stuff to survive.
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