As the EV bubble pops, beware of these stocks: Nikola, FFIE, MULN

There are increasing signs that the electric vehicle bubble has popped as stocks of companies, big and small, crash. Taken together, EV investors have lost over 1 trillion in the past few years, with Tesla leading the way.

Tesla’s market cap peaked at over $1.2 trillion in November 2021 and has now plummeted to $598 billion. In this case alone, Tesla investors have shed over $600 billion in value. This amount is equivalent to 10% of what investors lost during the dot com bubble.

Tesla is not alone. VinFast’s valuation has plummeted from $190 billion to $13 billion, costing investors $177 billion. Rivian, which was once valued at $150 billion now has a market cap of $14.9 billion. These three companies have lost over $914 billion. The number easily blasts past $1 trillion when we include the likes of Nio, Lucid, Nikola, and Polestar. 

Most EV companies will likely not survive in the long term as demand growth slows and as the industry confronts multiple risks like the poor charging infrastructure, range anxiety, and the fact that EVs cannot do some of the things that ICE vehicles do efficiently like quality off-roading and coast to coast travel. 

Most importantly, EVs seem to be depreciating at a faster pace than ICE vehicles. As such, there are concerns that mass adoption of EVs will take longer than the initial adoption. Therefore, some companies will likely not survive in the long term as their cash balances wane.

Mullen Automotive

The first EV company to be cautious of is Mullen Automotive (MULN), a firm that is building a few brands. The company has received a huge order from Randy Marion Automotive. It is also building some SUVs as it seeks to boost its market share in the most popular segment in the US.

There are two main reasons why you should be afraid of Mullen. First, it is still unclear whether there is adequate demand for the trucks it has delivered to Randy, a motor dealer. We need to wait and see whether customers will buy these vehicles.

Second, the company will ultimately need to raise cash because it is still burning it. Data by SeekingAlpha shows that it had $155 million in cash in the most recent quarter, down from $214 million a quarter earlier. Its net loss stood at $172 million in the same period. This means that the cash burn is continuing, a move that will force it to raise capital and possibly dilute investors

Faraday Future

Faraday Future (FFIE) is another EV stock to watch as the bubble bursts. This is a company that has spent billions of dollars building its luxury EV and has nothing to show for it. For one, its vehicles are highly expensive, with the FF 91 2.0 Futurist going for $309k. This means that this vehicle is worth three times the most expensive Tesla Cybertruck.

Worse, Faraday Future, which has become a penny stock, does not have the funds it needs to continue with its project. A few months ago, the company told WSJ that it plans to raise $90 million through a share sale. At the time, it had less than $10 million in its balance sheet and an equity valuation of less than $20 million. This means that the company will likely file for bankruptcy soon.

Nikola

Nikola (NKLA) is not necessarily an EV company after it stopped making its battery-electric truck. It is now focusing on its hydrogen trucks, which it has started to deliver. The company also raised funds last year in a bid to boost its balance sheet. And this week, it opened its first hydrogen fueling station.

The challenge for Nikola is that it still does not have enough money to go in the long run. For one, the company still needs money to build its hydrogen stations. Most notably, it is not clear whether there is demand for hydrogen trucks, which are three times that of diesel trucks. Therefore, there is a likelihood that NKLA share price will likely continue falling in the coming months.