2 Overvalued Electric Vehicle Stocks to Avoid This Month

The electric vehicle industry (EV) boom last year, driven by rising concerns regarding climate change, multiple government subsidies, and federal plans to phase out fossil fuel powered vehicles, drove a record level of EV sales in 2020. The IEA reported a record 3 million new electric car registrations in 2020, up 41% from the previous year. This sales level came in at a time when…

the global automobile market contracted by 16% due to the pandemic-led recession.

However, a global semiconductor shortage has emerged as a major hindrance to the growth of the EV industry, worsened by several natural and man-made calamities. According to consulting firm AlixPartners, the global automotive industry is projected to lose $110 billion in revenue in 2021 due to the ongoing chip shortage. Indeed, due to the rising prices of processor chips, EV manufacturers are scaling down their operations as  production costs rise significantly. Consequently, several EV companies’ revenue and earnings growth estimates should remain low for the coming quarters.

Given the bleak growth outlook, the current valuations of Tesla, Inc. (TSLA) and Workhorse Group Inc. (WKHS) seem unsustainable. Thus, we think these stocks are best avoided now.

Click here to checkout our Electric Vehicle Industry Report for 2021

Tesla, Inc. (TSLA)

TSLA is the biggest manufacturer and seller of electric vehicles (EVs). The company operates in two segments: Automotive, and Energy Generation and Storage.

TSLA recently recalled several  of its Model Y and Model 3 EVs due to flawed designs or finishing. On June 3, the company recalled 6,000 vehicles to tighten potentially loose bolts after the NHTSA reported that loose bolts could increase the risk of crash.

Also, CEO Elon Musk’s previous announcement that Tesla would  launch self-driving cars by the end of this year may not be realized. Last month,  TSLA sent a memo to the California Motor Vehicles Department stating that it might not be able to commercially deploy self-driving technology by the end of this year.

In terms of non-GAAP forward P/E, TSLA is currently trading at 130.66x, which is 653% higher than the 17.35x industry average. Its 11.69 forward Price/Sales multiple is 768.6% higher than the 1.35 industry average. The company’s forward Price/Cash Flow and EV/EBITDA ratios of 87.41 and 62.77, respectively,  compare with the industry averages of 15.14 and 11.73.

TSLA’s total revenues have increased 74% year-over-year to $10.39 billion in its  fiscal year  2021 first quarter. Its operating income grew 110% from the year-ago value to $594 million. The company’s non-GAAP EPS has increased 304% year-over-year to $0.93.

The Street expects TSLA’s revenues to rise 86.1% year-over-year to $11.23 billion in the current quarter (ending June 2021). A  $0.96 consensus EPS estimate  for the current  quarter indicates a 118.2% improvement year-over-year. The company has an impressive earnings surprise history as well. It beat the consensus EPS estimates in each of the trailing four quarters.

TSLA has lost 11.1% over the past month, and 15.1% year-to-date.

TSLA’s POWR Ratings are consistent with this bleak outlook. The stock has an F grade of F for Value, and grade D for Stability in our proprietary rating system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree. Among the 57 stocks in the C-rated Auto & Vehicle Manufacturers industry, TSLA is ranked #38.

To see additional POWR Ratings for Growth, Momentum, Sentiment and Quality, click here.

Click here to check out our Automotive Industry Report for 2021

Workhorse Group Inc. (WKHS)

WKHS designs and manufactures high performance electric vehicles and aircraft. The company  provides C-series electric delivery trucks and package delivery aircraft, and HorseFly.

Several law firms have filed lawsuits against WKHS  alleging  false and misleading statements made by the company to…

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