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Canoo shares are up about 80% since Lordstown Motors declared bankruptcy in late June.
Courtesy Canoo
Electric-vehicle start-up
Lordstown Motors
filed for bankruptcy protection in late June. It was a sign that becoming a successful, sustainable EV player amid rising competition from
Tesla
and traditional auto makers was harder than anyone would have imagined a few years ago.
Naturally, it was also a sign for investors to snatch up shares of similarly challenged EV start-ups. Wait, what?
It sounds odd but that’s what’s happening. Small-capitalization EV stocks are on fire. The recent run is a reminder to investors that the market is difficult to predict over any short period of time, and that returns for any stock aren’t always a function of what a company’s management team is doing.
Lordstown Motors (ticker: RIDEQ) declared Chapter 11 bankruptcy on June 27. Since then shares of micro-capitalization
Canoo
(GOEV),
Arrival
(ARVL),
Faraday Future Intelligent Electric
(FFIE),
Lion Electric
(LEV),
GreenPower Motor
(GP), and
Proterra
(PTRA) have gained an average of almost 40%.
In that group, only Arrival shares are down. Even Lordstown stock, which now trades over the counter, is up 21% since the EV maker declared bankruptcy. The two profitable EV makers, Tesla and China’s
BYD
(BYDDY), meanwhile saw shares gain 15% and 4% over that time frame.
Shares of larger EV start-ups with market caps of $10 billion or higher including
Polestar Automotive
(PSNY),
Lucid
Group (LCID) and
Rivian Automotive
(RIVN) are up about 40% on average as well.
The market caps of
Fisker
(FSR) and
Nikola
(NKLA) fall between those two groups. Both stocks are up. Fisker shares have gained about 34% since Lordstown declared bankruptcy. Nikola stock is up almost 150%.
To be sure, some of the gains have been caused by company-specific news. Nikola announced the sale of 50 hydrogen fuel cell-powered trucks. Rivian’s second-quarter vehicle production and deliveries beat Wall Street estimates. Lucid’s production and sales, however, did not.
The biggest reason for the big gains is probably just the market and an appetite for more risk. The
S&P 500
and
Nasdaq Composite
are up about 3% and 5%, respectively, since Lordstown declared bankruptcy. The
Roundhill Meme
exchange-traded fund (MEME), which tracks stocks of meme-like trades, is up about 17% over the same span.
Investing in meme stocks indicates an appetite for risk. One feature of meme stocks is their typically higher-than-average short interest. Short interest is roughly the percentage of stock borrowed and sold short by bearish investors compared with the shares available for trading.
The average short interest for an S&P 500 stock is less than 2%. The average short interest for the smallest EV start-up stocks is north of 10%, according to FactSet. The short interest in Nikola stock is almost 25%. (Nikola stock is up another 9% in Tuesday trading.)
High short interest can result in short squeezes, when investors rush to cover bets as stock prices rise, causing the stock prices to rise even higher. That is another thing that could be driving shares of EV start-ups.
Fundamentals for EV start-up stocks aren’t all that different today than they were a month ago. All still need capital to establish and grow their businesses. All are competing in an increasingly crowded EV space. In the U.S., 11 EV models sold more than 5,000 units in the second quarter, up from six EV models in the second quarter of 2022.
That all might matter in the long run. It doesn’t seem to matter right now.
Write to Al Root at [email protected]
Source: https://www.barrons.com/articles/ev-stock-lordstown-nikola-rally-ef0f6587?siteid=yhoof2&yptr=yahoo