Electric Vehicles were hot thematic plays in 2020-21. That came to a screeching halt as production lines were impacted by semiconductor shortages and a Fed tightening cycle ended overzealous speculation.
The sell-off in these EV plays has been brutal. Many of the stocks are down over 40% year-to-date and some are down over 90% from all-time highs. Are these names oversold? Are valuations reasonable at current prices?
The short answer is there is likely further pain in the space. The potential for bankruptcies is higher as it will be tougher to borrow money under the current monetary policy. That does not mean that traders cannot profit from oversold bounces. There will be some opportunities this week.
EVs will be in focus as the Rivian Automotive (RIVN) lock-up expiration and a major auto summit grab headlines this week. Traders should have a few names ready in case we see volatility.
Perhaps the most interesting event will be the lock-up expiration of Rivian.
A lock-up expiration is a period of 90 to 180 days following a company’s initial public offering in which insiders cannot sell shares. RIVN’s lock-up expires this week. Close to 800 million shares will be freed up to be sold by investors. The current float is 481 million.
Ford (F) owns 100 million shares of RIVN. According to CNBC, the company will sell 8 million shares through Goldman Sachs (GS). The report suggested that J.P. Morgan (JPM) plans to unload an additional 13-15 million shares. Both blocks are set to exchange shares at $26.90 which is approximately 12% above the current price.
Amazon (AMZN) is another major RIVN holder to watch. The company owns 160 million shares of RIVN or approximately 18%. Recall, the RIVN losses were a major drag on Q1 operating results. AMZN’s net loss included a pre-tax RIVN valuation loss of $7.6 billion, compared to a gain of $12 billion on those same shares in Q4.
AMZN has been a primary backer of RIVN. It has ordered 100,000 vehicles to be delivered by 2030. The company plans to have 10,000 new Rivian delivery vehicles on the road by the end of 2022. It is unlikely that AMZN will want to sell shares given the partnership. AMZN purchased the shares at the IPO price of $78.
Shares of RIVN are trading at $23. The stock rallied to $179 in mid-November. It is down 87% since that run. The stock has lost 72% of its value in 2022 alone. The Relative Strength Index is below the 30-level threshold (28) which highlights oversold conditions.
This is not an “all-clear” for buyers. The dilutive actions will keep long-term investors on the sidelines. However, the stock could signal seller exhaustion following this lock-up expiration. If that happens, then we will want to keep it on the radar for a possible swing long.
In addition to the Rivian lock up, the Financial Times is holding its “Future of the Car Summit” this week. Industry figures will discuss the latest technology and consumer and business model that are changing transportation.
The highlight will be Tesla (TSLA) CEO Elon Musk’s interview on Wednesday afternoon. Other notable speakers include Herbert Diess, CEO of Volkswagen Group (VWAGY), Ola Kallenius, CEO of Mercedes-Benz; Gill Pratt, Chief Scientist of Toyota Motors (TM), Luca de Meo, CEO of Renault, Jim Rowan, CEO of Volvo Cars, and Tekedra Mawakana, Co-CEO of Waymo owned by Alphabet (GOOGL).
The manufacturing summit will produce headlines all week. This puts the beaten-down space will be traders’ radars.
The broad market has been under tremendous duress since last week’s Fed meeting. Major indices are set to test key psychological support levels (S&P 4000, QQQs 300) which means we could be in for a bounce. These oversold, high short interest EV plays would represent some good squeeze opportunities in this scenario.
Here are a few names to watch:
Arrival (ARVL) -78% YTD, -93% from All-Time highs. The U.K.-based company has a 148 million float and a 33% short interest. This is an electric commercial van and bus manufacturer. Its approach to manufacturing is highly automated and designed to require less CAPEX, lower operating costs, and offer a shorter time to production than traditional plants. UPS (UPS) has contracted the company for 10,000 vehicles.
Sono Group (SEV) -59% YTD, -93% from all-time high. The company sells electric cars with integrated solar cells and mobility services. SEV did a 10 million share follow-on offering last week. It priced at $4 a share which allowed the company to raise $40 million. Investors can take some solace in the idea that there are no more dilutive actions on the horizon. The stock trades at $1.66 and could see a pop given its 34 million float and 7% short interest.
Nio (NIO) -51% YTD, -75% from 52-week high. The Chinese EV player has the additional weight of China’s ‘Zero Tolerance’ shutdown policies. April deliveries were only 5,074 compared to 9,985 in March. However, deliveries are still up 13% on a year-over-year basis. The company recently proposed a secondary listing on the Singapore stock exchange. You do not want to invest in these Chinese EV players in the current backdrop, but NIO is registering a 30 on the Relative Strength Index highlighting the oversold conditions.
Li Auto (LI) -41% YTD, -49% from all-time high. Another Chinese EV play to watch. The company reported Q2 results this morning. LI beat on the bottom line. Revenues increased 168% y/y to RMB9.56, slightly better than expected. The company did guide Q2 revenues and production below expectations, primarily due to the shutdowns in China. The stock jumped in reaction to the news which could signal squeeze potentials in other plays. A 163 million float and a 14% short interest set this up for a potential squeeze.
Lordstown Motors (RIDE) -40% YTD, -88% from all-time highs. RIDE reported results Monday morning, posting a loss of $87.9 million. They do not have any revenues, but it did reaffirm Q3s target for the start of commercial production, with an initial production of 500 units. Planned deliveries will not happen until 2023. You do not want to invest in a company that has no revenues. It does set up as an interesting trading vehicle given the 158 million float and 23% short interest.