These EV stocks are dwindling without end

The electric vehicle market has been on a wild ride in recent months. Demand for electric vehicles (EVs) has been disappointing, trade barriers are rising around the world and a flurry of planned stimulus spending in China changed the market’s tone last week.

According to data provided by S&P Global Market Intelligence, Lighting Technologies (LAZAR 7.97%) fell 11.8% in September, The Lucid Group (LCID 2.40%) decreased by 12.2% and Charging point (CHPT 3.87%) decreased by 27.1%.

VEs descend to Earth

Growth rates have slowed for EV vendors throughout the year, and a recent report from the Alliance for Automotive Innovation found that EVs lost market share in the first half of the year. Although gasoline vehicles lost their share, they were replaced by plug-in hybrids.

The weight loss is particularly bad news as the supply of electric vehicles is growing rapidly. And for money-losing companies like Lucid, weak demand could mean the upside when production ramps up fully won’t be as big as previously thought.

LCID Revenue Data (TTM) by YCharts; TTM = last 12 months.

To frame the potential battle another way, charging station provider ChargePoint announced its second-quarter results in early September and said revenue fell 28% to $108.5 million, while they lost $68.9 million. It’s getting harder and harder to make money in the EV market, and it could get even harder.

Trade barriers are rising

In the US, the Biden Administration has already imposed a 100% tariff on electric vehicle imports from China, and the European Union is set to raise its tariffs as well. The US is also proposing to ban software and hardware for connected vehicles originating in China.

There seem to be two global markets emerging, one inside China and one outside China. And with so many diverse interests around the world, it’s hard to see who will blink first.

A more bifurcated market, with local suppliers gaining most of the market share, would be bad for component companies like Luminar, a specialist in self-driving technology, that want to sell to everyone. And they had enough challenges financially even without a split global market.

Funding concerns are growing

As all this bad news circulates in the market, it becomes increasingly difficult to see a way forward for companies that do not have a significant industry leader and do not generate positive cash flow.

There are two ways in which companies can finance their businesses, and that is through the sale of debt or equity. You can see below that Lucid, Luminar, and ChargePoint all have significant debt, so the debt markets may not be open to them.

Total long-term debt LCID (quarterly); data by YCharts.

And with falling stock prices, the stock markets will be hard to access.

Without fundamental business change, these companies have no way forward. Operations aren’t generating the cash they need, and falling share prices mean investors are exiting the business.

There is no easy way out for potential buyers either. Lucid’s design and technology doesn’t fold seamlessly into another automaker’s ChargePoint plug is a commodity; and the market for lidar, which Luminar supplies, is seeing prices drop rapidly as competition improves.

I don’t see an easy way out for these EV stocks, and September’s decline may not be the smallest for any of them.