Stock Analysis & Ideas

MULN, RIVN, FSR: How Economic Factors May Impact These 3 EV Stocks

Story Highlights

Although EV stocks are all the rage, recent economic developments pose considerable challenges for this burgeoning sector.

When the geopolitical flashpoint erupted in eastern Europe, the subsequent spike in gasoline prices presented a rather straightforward narrative for EV stocks such as Mullen (NASDAQ:MULN), Rivian (NASDAQ:RIVN), and Fisker (NYSE:FSR). However, recent pivots in monetary policy may have significant implications for the broader economy. Therefore, investors must navigate the narrative undergirding the electrification of mobility very carefully.

On the bullish front for EV stocks, the pain at the pump continues to represent one of the best organic marketing devices that EV manufacturers have. Though the initial cost to get into an electric-powered car can be quite steep for the average consumer, immediately after the purchase, the savings start to build. Moreover, because EVs feature far fewer moving parts than their combustion-powered counterparts, drivers can save on maintenance costs.

In addition, heat waves both in the U.S. and abroad point to growing concerns about climate change. While EV manufacturing imposes its own footprint on the environment, because the vehicles themselves are zero emissions, on a net basis, they offer a cleaner solution to combustion cars. Therefore, the political framework bodes well for EV stocks.

On the not-so-pleasant side of the fence, the aforementioned cost to buy an EV is costly indeed. According to Kelley Blue Book, the average price of a new electric-powered vehicle earlier in 2022 was $62,876. However, the pre-pandemic U.S. household income was only $69,560. For many folks, EVs are simply too expensive.

As well, Federal Reserve chair Jerome Powell, when speaking at the annual economic symposium at Jackson Hole, Wyoming, reaffirmed the central bank’s commitment to tackling inflation through higher interest rates. While that could lower the cost of EVs, it would likely make them difficult to finance.

Further, pushing interest rates too high could lead to a recession. In light of recent developments, investors need to assess the below EV stocks meticulously.

Mullen Automotive

One of the recent upstarts in the electrification of mobility space, Mullen Automotive recently generated business headlines when it announced that it acquired a controlling interest in EV truck innovator Bollinger Motors. Per the accompanying press release, this is “Mullen’s first EV acquisition and propels the Company into the medium-duty truck classes 3-6, along with the B1 and B2 sport utility trucks.”

Unfortunately, the company runs into a credibility problem. So far, as is the case with myriad upstart EV stocks, Mullen is a pre-revenue enterprise. To be fair, management significantly improved its balance sheet over the last several months. For instance, in the quarter ending Sept. 30, 2021, Mullen’s total equity was -$62 million. In the most recent Q2 2022 report, the total equity was $19.2 million.

Still, it’s going to be tricky for Mullen to convince consumers in a tough economy to fork over $55,000 – the starting price for the Mullen FIVE SUV crossover. Considering that inflationary forces have spiked costs across the board, no guarantee exists that the company can keep its SUV at the listed price.

Rivian Automotive

One the most hotly anticipated initial public offerings, Rivian Automotive made its debut in November 2021. Though shares immediately jumped higher, like many other EV stocks, investors quickly soured on risk-on trades. With the Fed threatening to aggressively implement a hawkish monetary policy, the subsequent rise in borrowing costs made producers of high-ticket items far less attractive.

On the plus side, Rivian is a post-revenue company if you will. In contrast to purely speculative EV stocks, Rivian is delivering the goods. For instance, in Q2 2022, the company generated revenue of $364 million. In the year-ago quarter, it generated nothing on the top line, and in Q3 2021, the sales tally was only $1 million.

However, the fundamental drawback for Rivian is that the company’s retained earnings loss stands at nearly $9.7 billion. Therefore, Rivian has burned through a lot of money, and may take many years for Rivian to become net profitable on a long-term basis.

Finally, Rivian suffers from a high-cost profile, which it raised. Per Inverse.com, Rivian’s “R1T, originally $67,500, now costs $79,500 for the same configuration. The R1S, originally $70,000, now costs $84,500.”

Is RIVN Stock a Buy?

RIVN has a Moderate Buy consensus rating based on eight Buys, five Holds, and one Sell assigned in the past three months. The average RIVN stock price target of $49.15 implies 23.1% upside potential.

Fisker

A central theme among pure-play EV stocks is that very few, if any, feature an automotive heritage. However, Fisker distinguishes itself from its rivals thanks to the man behind the company. A legendary auto designer, Henrik Fisker delivered the aesthetic lines for some of the most iconic cars, including the BMW Z8 and Aston Martin DB9.

While beauty is in the eye of the beholder, the Fisker Ocean SUV arguably represents one of the most aesthetically pleasing EVs. It may not show up as a line item on a financial report, but a compelling design is critical to automotive success. After all, with a vehicle being the average person’s second-most expensive acquisition, presentability carries a premium.

What makes Fisker truly stand out, though, is the pricing. The entry-level Ocean SUV starts at $37,499. That’s well within the target range of the median U.S. household income, which is around $70,000. Compare that to the average price of a new EV in 2022, which is $62,876.

Still, the cautionary tale here is the financials. Fisker is barely making anything, which means FSR requires serious faith among its believers.

Is FSR a Good Stock to Buy Now?

Like Rivian, FSR has a Moderate Buy consensus rating based on three Buys, two Holds, and one Sell assigned in the past three months. However, the average FSR stock price forecast of $13.50 implies 46% upside potential, significantly higher than RIVN.

Which EV Stock Stands Out?

While new EV stocks clearly present major risks, each of the names listed above has its positives. Mullen attracts speculative meme traders. Thus, shares can pop higher at any moment. On the other hand, Rivian has already delivered products to market, meaning that it has real numbers on the top line. Still, if Fisker is able to deliver an entry-level electric SUV at under $38,000, it’s going to be very difficult for the other EV players to compete effectively. Thus, Fisker might be the one that stands out the most.

Disclosure.

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