Beware of These 4 Overvalued Electric Vehicle Companies

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 world 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 – Get Rating), Xpeng, Inc. (XPEV – Get Rating), are  struggling to generate adequate profits. Furthermore, with multiple start-up EV manufactures making their stock market debuts absent product pipelines, the EV space appears to be in a bubble.

The stocks of EV startups Fisker, Inc. (FSR – Get Rating) and Nikola Corporation (NKLA – Get Rating) have gained in double digits over the past year.  But these companies have not launched a single vehicle in the market.

Click here to learn more about the electric vehicle industry in 2021

Tesla, Inc. (TSLA – Get Rating)

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 January 2. TSLA’s total revenues have increased 46% year-over-year to $10.74 billion in the fourth quarter ended December 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  current profitability is very  low.

In terms of non-GAAP forward p/e, TSLA is currently trading at 192.02x, which is 866.2% more expensive than the industry average  19.87x. The company’s forward price/sales ratio of 16.04x is 1063.1% higher than the industry average  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 March 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 currently ranked #35.

You can check out TSLA’s additional ratings for Growth and Quality here.

Fisker, Inc. (FSR – Get Rating)

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, affiliated with Spartan Acquisition Energy Corporation, on October 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 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…

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