Why electric vehicle (EV) stocks slid into losses on Wednesday

Not long ago, electric vehicle (EV) stocks were the assets that could do no harm. Despite the many hiccups and challenges associated with the industry, electric vehicles were the future of human mobility. In recent months, however, skepticism about this has grown. The novelty of the not-so-new technology has worn off, and negative news from some leading manufacturers has turned off both consumers and stock investors.

So it doesn’t take much these days to dampen sentiment toward EV stocks. Moderately disappointing quarterly results from China’s only two profitable electric vehicle companies spread discontent across the sector on Wednesday. US electric vehicle stocks took some hits as a result, with vehicle manufacturers Rivian (RIVN -4.49%) and Nicholas (NKLA -9.83%) price drops of nearly 5% and nearly 10% respectively, while the high-end battery developer QuantumScape (QS -5.51%) closed the day 5.5% lower.

Disheartening news from across the Pacific

The latest set of fundamentals from EV dominated the headlines on Wednesday Li Auto (LI -16.12%) and BYD (BYDD.F -1.92%). Neither company’s presentation was impressive.

Li Auto, which specializes in extended-range electric vehicles (EREVs), which are actually hybrid models, beat analysts’ consensus estimate for profitability in the second quarter and more or less matched that for revenue. What was more worrying was the shrinking margins, a direct result of falling prices.

Sound familiar? Price drops on top models have been a feature of the US market in recent months, particularly in the sector adzehis series of chops. In general, a healthy industry with somewhat limited competition should not reduce the prices of its products. But the worldwide electric vehicle market these days is full of competitors at a time when consumer interest in electric vehicles appears to be waning.

Li Auto’s Chinese subsidiary, BYD, managed to nearly double its revenue year-on-year in its second quarter. However, shrinking in the first six months of the year, robust overseas net income of 13.6 billion yuan ($1.9 billion) fell short of the average analyst expectation of 17.9 billion yuan ($2.5 billion). Investors reacted accordingly to this big mistake.

Inflated expectations

While both Li Auto and BYD remain well in the black and continue to show sometimes lively growth, they are not the turbocharged economic pacesetters they once were. The mismatch between analyst estimates and company performance has been stark in some cases, demonstrating that both professionals and investors may need to recalibrate their expectations for the EV sector as a whole.