3 EV stocks to avoid as the bubble deflates: MULN, VinFast, Canoo

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on Sep 1, 2023
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  • There are signs that the EV bubble is deflating this year.
  • Companies like Tesla and Ford have been forced to slash prices.
  • Smaller EV companies will likely struggle in the coming months.

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The electric vehicle (EV) industry is going through major headwinds as demand slows and interest rates rise. Companies, including mainstream brands like Tesla and Ford have been forced to slash prices in a bid to boost demand. 

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At the same time, EV inventories are rising while competition from companies like Hyundai, BMW, and Volkswagen is soaring. Here are some of the top EV stocks to avoid.

Mullen Automotive (MULN)

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Mullen Automotive (NASDAQ: MULN) stock price has plunged by more than 90% this year as risks of bankruptcy rises. This sell-off even pushed the company’s CEO to express his frustrations through a letter to shareholders.

Mullen Automotive faces several challenges, as I have documented here and here. First, the company is burning cash at a fast pace. Its net loss came in at $740 million in 2022, according to SeekingAlpha data. Losses have continued rising this year.

Second, the company’s decision to buy back its stock is questionable because of its relatively weak balance sheet. To put this into perspective, profitable companies like Tesla don’t buy back their shares.

Third, while the company has received orders from Randy Automotive, it is unclear whether it will break even any time soon. Therefore, while the MULN stock price has tumbled this year, I suspect that it has more downside going forward.

VinFast Auto (VFS)

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VinFast (NASDAQ: VFS) stock price was the breakout star in August. Shares of the Vietnamese company surged, pushing its market cap to over $100 billion. This performance had close similarities with Rivian, which became bigger than Ford and in its early days.

VinFast shares have now plunged by more than 63% from its highest point in August, as I had predicted. I believe that VinFast is not a good investment for several reasons. It is entering a crowded market, it needs more money to build its supply chain in the US, and its cash burn will continue for a while. I suspect that the VinFast share price will plunge to below $20 in the near term.

Canoo (GOEV)

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Canoo (NASDAQ: GOEV) stock price had a solid performance in August as it jumped by more than 40% from its lowest level during the month. This performance happened after Canoo narrowed its loss by 57% during the last quarter.

The company has been lowering its losses for a while, which is an encouraging move. Also, unlike other companies, Canoo has a $3 billion order book, including $500 million in binding contracts.

My concern is that the company has more room to continue burning cash. For example, it anticipate to have an adjusted EBITDA of minus $120M and $140M. This is a huge number since Canoo ended the last quarter with just $5 million in cash and equivalents. Therefore, the company could be forced to raise additional cash this year.

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Mullen Automotive Electric Vehicle (EV) Manufacturing Stock Market