Without a doubt, life is difficult for EV start-ups. Creating automobiles is a complex and challenging process, even under the most favorable conditions. Indeed, the design, development, manufacturing, and marketing of electric vehicles is a process fraught with potential pitfalls for a given company and its investors.
Many EV start-ups face unique challenges due to their limited industry experience and the novelty of electric vehicles in today’s world. Additionally, the consumer EV sector has become intensely-competitive, with many if not most large automakers entering the space. And finally, it will take several years, in the best-case scenario, for most start-up EV makers to become profitable. In light of these factors, it’s very important for investors to identify which EV stocks aren’t worth investing in right now.
Tesla (NASDAQ:TSLA) CEO Elon Musk in May indicated that he believes many EV makers will go bankrupt. I agree with his prediction. However, the question is how investors can tell which EV start-ups are likely go under?
I believe that one way to make such a determination is by identifying the EV stocks which are seeing significant insider selling activity. Institutional investors know more about EV stocks, and which ones to avoid, than the public (in general). Therefore, it’s important to know which EV stocks major investors are selling, and to avoid those names.
Based on this criterium, here are three EV stocks to sell.
Point72 Middle East, a global asset manager affiliated with billionaire investor Steve Cohen, sold its entire Fisker (NYSE:FSR) stake in Q1. Additionally, some prominent selling was seen by the large Japanese investment bank, Nomura, which sold 75.4% of its stake, or 317,498 shares, over the same time frame.
Citi unloaded 23% of its stake, or 5,195 shares, while investment bank Jefferies gave up all 1,630 of its FSR stock. Finally, Morgan Stanley shed 15.14% of its stake or 427,465 shares.
Also noteworthy is that Wolfe Research cut its rating on FSR to “underperform” from “peer perform,” citing increased difficulty in this sector around competition. Wolfe placed a $6 price target on the shares, versus its June 23 closing price of $5.09.
Lucid Group (LCID)
In Q1, Norges, Norway’s central bank, sold all 4.296 million of its shares of the EV start-up Lucid (NASDAQ:LCID), according to Fintel. For its part, Britain’s HSBC sold 71.603 shares, representing 20.35% of its stake, while Royal Bank of Canada unloaded 59% of its stake, or 392,966 shares.
Meanwhile, the aforementioned Nomura unloaded 15,780 shares and Point 72 sold a call option on 10,200 shares. Finally, Korea Investment Corp., South Korea’s sovereign wealth fund, dropped 52% of its stake, or 70,365 shares, and Goldman Sachs unloaded 70.6% of its stake, or 4.66 million shares.
On May 31, Bloomberg reported that the automaker would obtain about $3 billion of additional capital from investors, including Saudi Arabia. The infusion will dilute the existing holders of LCID stock.
For Q1, Lucid delivered 1,406 of its EVs, significantly below the previous mean estimate of 1,835 deliveries.
European insurer Axa sold all 394,800 of its shares of Canoo (NASDAQ:GOEV) in the first quarter, while Citadel, the hedge fund owned by renowned investor Ken Griffin, unloaded 100% of its 185,258 shares.
Investment bank Jefferies sold all of its 25,172 shares of Canoo, while Morgan Stanley got rid of 69% of its GOEV stock, or 1.27 million shares. Finally, Invesco unloaded 95.3% of its stake, or 1.57 million shares.
Earlier this month, Seeking Alpha columnist Pacifica Yield reported that Canoo only had enough cash to survive for “a few…more quarters.” As a result, the columnist warned, the automaker has a high chance of going bankrupt.
More specifically, the company’s operations were burning around $67 million of cash per quarter, while the firm only had $12.5 million of cash and cash equivalents as of the end of Q1.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.