Insights

Why Lucid, Fisker, and Nikola Stocks Are Crashing This Week

What happened

This hasn’t been a good week for stocks overall, with the S&P 500 index down more than 5% and potentially heading for its worst weekly performance since March 2020. Technology and growth stocks are also continuing 2022 declines, with the tech-heavy Nasdaq well into bear market territory, down more than 30% year to date.

Speculative electric vehicle (EV) stocks have been leading the way. This week, Lucid Group (NASDAQ: LCID), Fisker (NYSE: FSR), and Nikola (NASDAQ: NKLA) are good examples. The start-up EV companies had weekly drops of 12.9%, 7.7%, and 8.4%, respectively, as of late Friday morning, according to data provided by S&P Global Market Intelligence.

So what

The macroeconomic environment has been driving investors away from higher-risk holdings. Lucid, Fisker, and Nikola are in a very capital-intensive business, and Fisker hasn’t even begun production as of yet. While Lucid and Nikola expect meaningful revenue for the first time this year, there are so many unknowns related to their future that investors are fleeing these start-ups. The selling gained traction this week with the Fed’s decision to boost benchmark interest rates faster than previously expected. Some investors interpret that as a sign that a recession is inevitable

Now what

With all the macro concerns, there still looks to be a tremendous amount of growth to come in the EV sector. But it seems even some company executives are pivoting to a more cautious approach. Lucid ended the first quarter with almost $5.4 billion in cash on its balance sheet, but this week it made a move to bolster its financial flexibility even further. The company entered into a new, $1 billion revolving credit agreement with several lending institutions. While Lucid CFO Sherry House said its existing cash balance should carry it well into 2023 with its growth and investment plans, the new facility provides another five years of borrowing capacity. 

Nikola is taking a different approach to bolster its finances for more uncertain times. The company is asking shareholders to approve a proposal for its upcoming annual meeting to authorize an increase in the number of shares outstanding from 600 million to 800 million. This would give it the ability to raise new capital, and the company put out a public plea this week for shareholders to vote affirmative on the proposal. That came after it was forced to adjourn its meeting on June 1 when the measure didn’t get enough voter input to ensure its passage from the majority of shares. 

The EV market is still expected to grow quickly. But a recession, or even less severe economic downturn, will likely have an effect on the pace of growth. Investors this week are selling start-ups like Lucid, Nikola, and Fisker as they may be in a weaker financial position than previously thought from slowing global economies.

Howard Smith has positions in Lucid Group, Inc. and Nikola Corporation. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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