With the fear of a recession in the upcoming months rising, the automobile industry will likely remain under pressure as consumers tend to reduce their spending on items like cars, leading to a decline in demand for automobiles during an economic downturn.
Amid the economic uncertainty, the auto sector’s prospects look dull. Therefore, it could be wise to sell some of the fundamentally weak EV stocks XPeng Inc. (XPEV), Canoo Inc. (GOEV), and Faraday Future Intelligent Electric Inc. (FFIE) before it’s too late.
The Electric Vehicle (EV) industry is facing several challenges, including those related to a lack of computer chips, rising prices for raw materials, charging infrastructure, and manufacturers’ deliberate decisions to maintain low inventories and high pricing while investing extensively in the development of EVs.
According to J.D. Power's Automotive Forecast, EV adoption is down from 8.5% in February to 7.3% in March due to reduced shopper confidence in the new tech and lack of infrastructure. Moreover, the sector’s downfall is evident from the Simplify Volt RoboCar Disruption and Tech ETF’s (VCAR) 37.7% decline over the past year.
In addition, during a recession, credit markets may tighten, making it harder for consumers to obtain financing for purchasing vehicles. Considering the industry’s weakening demand, EV stocks such as XPEV, GOEV, and FFIE could be best avoided.
XPeng Inc. (XPEV)
Headquartered in Guangzhou, China, XPEV operates as a designer, developer, manufacturer, and marketer of smart EVs. Its offerings include SUVs under the G3 name, four-door sports sedans under the P7 name, and smart EVs and family sedans under the P5 name.
In terms of trailing-12-month EV/Sales, XPEV is trading at 1.47x, 31.3% higher than the industry average of 1.12x. Also, its trailing-12-month Price/Sales multiple of 2.14 compares to the industry average of 0.84.
XPEV’s total revenue decreased 39.9% year-over-year to RMB5.15 billion ($743.39 million) for the fourth quarter that ended December 31, 2022. Its non-GAAP loss from operations widened 1.2% from the year-ago value to RMB2.37 billion ($342.56 million), while its gross profit declined 56.5% from its prior-year quarter to RMB445.06 million ($64.37 million).
The company’s non-GAAP net loss came in at RMB2.21 billion ($319.96 million) and RMB1.29 per share, widening 84.6% and 84.3% year-over-year, respectively, for the same period.
Analysts expect XPEV’s revenue to decrease 35.4% year-over-year for the first quarter (ended March 31, 2023) to $724.47 million. Its EPS for the to-be-reported quarter is expected to decline by 17.9% year-over-year to a loss per share of $0.32. Moreover, it failed to surpass its consensus EPS and revenue estimates in three of its trailing four quarters.
The stock has lost 61.6% over the past year to close the last trading session at $9.75.
XPEV’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a D grade for Value, Stability, Sentiment, and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #58 of 73 stocks. Click here to see the other ratings of XPEV for Growth and Momentum.
Canoo Inc. (GOEV)
GOEV is a mobility technology company engaged in designing, developing, and manufacturing EVs for commercial and consumer markets in the United States. The company’s EV portfolio includes lifestyle delivery vehicles, lifestyle vehicles, multi-purpose delivery vehicles, and pickups.
During the fourth quarter that ended December 31, 2022, GOEV’s operating loss amounted to $83.17 million. Net loss and comprehensive loss for the same period came in at $80.23 million and $0.25 per share, while its adjusted EBITDA loss stood at $60.67 million.
In addition, its cash and cash equivalents declined 83.7% to $36.59 million, compared to $224.72 million for the fiscal year that ended December 31, 2021.
The stock’s forward EV/Sales and Price/Sales multiples of 2.40 and 2.19 are 117.9% and 166.9% higher than the industry averages of 1.10 and 0.82, respectively.
Streets expect GOEV’s EPS to remain negative for the fiscal years 2023 and 2024. Moreover, it failed to surpass the EPS estimates in each of the trailing four quarters.
Over the past year, the stock has declined 84.2% to close the last trading session at $0.77.
GOEV’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and Quality and a D for Value. Within the same industry, it is ranked #56. To see the GOEV’s ratings for Growth, Momentum, and Stability, click here.
Faraday Future Intelligent Electric Inc. (FFIE)
FFIE is engaged in the design, development, manufacturing, engineering, sale, and distribution of EVs and related products in the United States.
In terms of forward EV/Sales, FFIE is trading at 1.23x, 11.7% higher than the industry average of 1.10x. Also, its forward Price/Sales multiple of 0.87 compares to the industry average of 0.82.
In the fiscal fourth quarter that ended December 31, 2022, FFIE’s operating loss amounted to $83.92 million. Its net loss widened 82.6% and 23.1% year-over-year to $153.90 million and $0.32 per share, respectively, for the same period. In addition, its total current assets declined 89.1% year-over-year to $66.41 million.
Analysts expect FFIE’s EPS for the fiscal year 2023 and 2024 to remain negative. Over the past year, FFIE’s shares have slumped 94.2% to close the last trading session at $0.15.
FFIE’s POWR Ratings reflect this weak outlook. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system. It has an F grade for Stability and a D for Value, Sentiment, and Quality. In the same industry, it is ranked #59 out of 73 stocks.
Beyond what I’ve stated above, we have also given FFIE grades for Growth and Momentum. Get all FFIE ratings here.
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XPEV shares were trading at $9.76 per share on Wednesday afternoon, up $0.01 (+0.10%). Year-to-date, XPEV has declined -1.81%, versus a 8.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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