Beware These 4 Overvalued Electric Vehicle Companies
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The electric vehicle industry has been one of the fastest growing industries over the past year, triggering a global automotive revolution. However, the industry’s surging momentum has been supported primarily by investor optimism regarding its potential, rather than its operational performance. Global vehicle sales slumped by one-fifth in 2020, with electric vehicles accounting for 43% of the total sales volume.
A slowly recovering economy has increased the pressure on this industry because companies are failing to generate sufficient revenues to justify their premium valuations. While governments have been shaping policies to drive the EV sector, i.e., with tax credits and other mandates, depressed consumer spending levels and stagnant job growth have affected industry sales.
As a result, most EV companies, including Tesla, Inc. (TSLA) and Xpeng, Inc. (XPEV), are struggling to generate adequate profits. Furthermore, with multiple start-up EV manufactures making their stock market debuts, the EV space appears to be in a bubble. The stocks of EV startups Fisker, Inc. (FSR) and Nikola Corporation (NKLA) have gained in double digits over the past year. But these companies have not launched a single vehicle in the market.
Tesla, Inc. (TSLA)
TSLA has been leading the EV revolution worldwide, with 424.1% gains over the past year. The company’s recent inclusion in the S&P 500 index after reporting profits in five consecutive quarters sent its stock soaring, pushing it to a nearly 95% over the past three months.
TSLA strengthened its position as the largest EV manufacturer in the world in 2020, with annual deliveries crossing the half-a-million mark. The company also began operations in its Shanghai manufacturing base as of Jan. 2.
TSLA’s total revenues have increased 46% year-over-year to $10.74 billion in the fourth quarter ended Dec. 31, 2020. Its Gross profit has risen 49% from the same period last year to $2.07 billion, while its non-GAAP net income grew 134% from the year-ago value to $903 million. Its non-GAAP EPS has increased 95% from the prior year quarter to $0.80.
While the company’s impressive earnings and revenue growth have driven the stock’s price performance, its low profitability is still a concern. Even after a 5-for-1 stock split last August, the stock is trading at sky-high valuations. In fact, TSLA’s CEO, Elon Musk, has expressed concern regarding the company’s low profitability in a leaked email released in December. While the stock has been surging lately due to expectations of higher profits in the future, TSLA's recent profitability has been very low.
In terms of non-GAAP forward p/e, TSLA has recently been trading at 192.02x, which is 866.2% more expensive than the industry average of 19.87x. The company’s forward price/sales ratio of 16.04x is 1063.1% higher than the industry average of 1.38x. TSLA is also more expensive compared to its peers in terms of forward price/cash Flow (142.29x vs 16.86x).
A consensus EPS estimate of $0.76 for the current quarter ending Mar. 31, 2021 represents a 230.4% rise year-over-year. TSLA has an impressive earnings surprise history, as well; it beat the Street EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $9.95 billion for the current quarter represents a 66.2% improvement from the same period last year.
TSLA has an overall rating of C, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. It has an F grade for value and D grade for Stability and Sentiment. In the 52-stock Auto & Vehicle Manufacturers industry, TSLA is ranked #35.
TSLA shares fell $0.88 (-0.11%) in after-hours trading on Friday. Year-to-date, TSLA has gained 15.65%, versus a 5.02% rise in the benchmark S&P 500 index during the same period. You can check out TSLA’s additional ratings for Growth and Quality here.
Fisker, Inc. (FSR)
Founded by renowned luxury car designer Henrik Fisker, FSR made its public debut through a reverse merger in October. The company went public through an SPAC with Apollo Global Management (APO), affiliated with Spartan Acquisition Energy Corporation, on Oct. 30, making it one of the newest players in the electric vehicle market. FSR has generated $1 billion in cash through the merger, including $500 million through common stock PIPE funding.
FSR is expected to launch its Fisker Ocean vehicle in the fourth quarter of 2022, and three vehicles by 2025. The company recently partnered with auto supplier Magna International (MGA) to supply the vehicle platform and build its Ocean SUV. It plans to launch its debut EV Ocean with autonomous driving features, integrated through the Fisker Intelligent Pilot.
Last October, FSR announced a strategic partnership with Viggo Sign for the delivery of 300 vehicles in the fourth quarter of 2020. Last July, FSR entered advanced talks with Extreme E for a potential strategic partnership.
FSR has gained 60.3% since its market debut late October. However, the company doesn’t have adequate financials to back up this stock price gain. It is still in the production phase and has yet to launch a vehicle in the market. FSR has a market capitalization value of $4.28 billion.
With the company’s plan to debut Fisker Ocean EV in the fourth quarter of next year, it is unlikely that FSR will generate revenues in fiscal 2021. The stock is therefore surging on investor optimism alone, and is a highly speculative investment bet. Analysts expect FSR’s EPS to decline 37.9% this year.
FSR has an overall rating of F, equating to Strong Sell in our POWR Ratings system. It has an F grade for Value, Quality, and Sentiment, and D for Growth and Stability. It is ranked #52 in the same industry. In addition to the grades I’ve highlighted, you can check out additional ratings for Momentum here.
Xpeng, Inc. (XPEV)
XPEV is one of the most popular names in the Chinese EV industry. Founded in 2014, the company listed its shares on NYSE last August. XPEV listed 85 million American Depository shares, raising approximately $1.5 billion.
XPEV’s vehicle deliveries increased 265.8% year-over-year in the third quarter ended Sept. 30, 2020. The company reported record monthly deliveries of 6015 vehicles in January, up 470% from the year-ago value. Its revenues have increased 342.5% from the same period last year to RMB1,990.10 million.
However, despite these impressive sales and vehicle delivery figures, XPEV has yet to turn profitable. XPEV’s net loss increased 48% from the prior year quarter to RMB1,148.80 million. The company also reported a net loss of RMB5.07 per share over this period.
Despite its low profitability and negative earnings, XPEV has gained 40.6% over the past three months, owing to the rising popularity of the EV industry. In terms of forward price/sales, XPEV has recently been trading at 41.26x, 2773.4%, which is more expensive than the industry average of 1.44x. Its forward ev/sales of 38.63x is 2192.5% more expensive than the industry average of 1.69x.
One of the main reasons behind XPEV’s uncertain growth prospects in the U.S., making it a relatively overvalued stock, is the increased federal scrutiny of Chinese companies trading on U.S. stock exchanges. Several Chinese stocks were banned from trading on the NYSE and NASDAQ last December. The exchanges are currently planning to ban tech and e-commerce giants Alibaba (BABA) and Tencent (TCEHY) soon, based on security concerns.
Analysts expect XPV’s EPS to remain negative in fiscal 2021. Furthermore, the company’s EPS is expected to decline at a rate of 5.2% per annum over the next five years. A consensus revenue estimate of $2.13 billion for the current year represents a 145.1% improvement year-over-year.
XPEV has an overall rating of F, which equates to Strong Sell in our POWR Ratings system. It has an F grade for Stability, and a D grade for Value and Quality. XPEV is ranked #45 in the Auto & Vehicle Manufacturers industry. You can check out additional POWR Ratings for Growth, Sentiment, and Momentum here.
Nikola Corporation (NKLA)
NKLA made headlines earlier this year when it went public through a SPAC with blank check company Vector IQ. The company has designed first-of-their-kind hydrogen fuel-cell powered electric trucks, which quickly became a big hit. As investors bought into the hype, NKLA gained 178.5% within just five days of its public debut on June 4 to hit its all-time high of $93.99.
However, the bubble soon burst. Hindenburg Research released an article stating several instances of misconduct by the company and its CEO Trevor Milton. NKLA allegedly falsified the type of technology used in its production to sway investors, and allegedly published misleading reports regarding the progress in production. Following the report, Milton resigned in September.
To rebuild its tainted reputation, NKLA announced a partnership with General Motors (GM) in September. In the deal, GM was supposed to acquire an 11% stake in NKLA and be a major supplier of hydrogen fuel-cells for NKLA trucks. However, the deal fell through in November. GM dropped the acquisition clause from the deal.
Currently, the have now signed a non-binding Memorandum of Understanding (MoU) under which GM will supply Hydrotec fuel systems for NKLA’s semi-trucks. Also, Republic Services (RSG) ended its partnership agreement with NKLA to develop Refuse trucks on Dec. 23.
NKLA is currently facing a class action lawsuit for violating certain clauses of the Securities Exchange Act, filed in November last year. It is also being evaluated by shareholder rights law firm Johnson Fistel LLP for potential federal securities violations on or before May 8 of last year. Following these developments, NKLA has declined 45% over the past three months.
NKLA is still constructing its manufacturing facilities in Coolidge and Arizona, after which production should begin. It expects the manufacturing center to become operational this year, while the Coolidge facility should be ready to begin production by 2022 at the earliest.
NKLA reported a loss from operations of $117,299 in the third quarter ended Sept. 30, 2020. Its net loss amounted to $117,469, while its net loss per share was $0.31. In terms of forward price/sales, NKLA has recently been trading at 176800x, which is significantly higher than the industry average of 1.57x. Its forward ev/sales ratio of 158430x is significantly higher than the industry average of 1.97x.
Analysts expect NKLA to report negative EPS through the end of 2021. A consensus revenue estimate of $62.48 million for fiscal 2021 represents a124860% rise year-over-year. However, analysts expect the company’s EPS to decline 27.8% this year.
It’s no surprise that NKLA has an overall rating of F, which equates to Strong Sell in our proprietary POWR Ratings system. It has an F grade for Value, Stability, and Quality. NKLA is ranked #48 in the same industry. To see additional POWR Ratings for Growth, Sentiment, and Momentum for NKLA, click here. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
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