Shares of EV-related companies Lucid Group (LCID 2.28%), ChargePoint (CHPT 2.63%), and Blink Charging (BLNK 7.62%) were rallying Wednesday, up 4%, 3%, and 8%, respectively, as of 1:33 p.m. ET.
These electric vehicle (EV)-related stocks are highly sensitive to interest rates. That means yesterday’s softer-than-expected October Consumer Price Index (CPI) lit a fire under each, and that rally was followed through today by today’s much softer-than-expected Producer Price Index (PPI) data.
Why interest rates disproportionately affect EV and clean energy stocks
The common denominator across these companies is that they each play into the electric vehicle space, and each are losing money as they invest in what they believe to be a large future market.
That means first, each company may have to raise more capital at some point, and therefore is dependent on its stock price or debt markets. Those two things are greatly affected by interest rates.
Second, high interest rates have really slowed down electric car adoption. While EV consumers tend to save on gasoline costs, EVs do tend to come with a higher price tag, even with some government incentives. Since most take on car loans to buy big-ticket items such as EVs, that has priced some out of the market.
In fact, Lucid missed revenue estimates for the recently reported third quarter, and lowered its full-year delivery guidance to between 8,000 and 8,500 cars, down from its prior outlook of 10,000 deliveries. The company cited weak demand, not its supply chain, as the culprit.
While Lucid likely has the backstop of the Saudi Arabia Public Investment Fund (PIF) as its large backer, it, too, may need to raise more money at some point, which would dilute shareholders. That will either come from the debt markets or its stock price, which is also affected by interest rates.
In its recent presentation, Lucid noted it had enough liquidity to last through 2024 and “into 2025.” While the company had $5 billion in cash or so at the end of the last quarter, it burned through $700 million in the quarter alone.
Similarly, while Blink Charging impressed in its own recent third-quarter report, with revenue beating expectations, the company still garnered an adjusted EBITDA loss of $11.6 million, with just $67 million in cash left on the balance sheet.
While ChargePoint has a larger amount of cash at $263.5 million as of July 31, it also has even more debt, and it also generated an adjusted EBITDA loss of $81.2 million in the quarter. The company will report its October-ended quarter soon.
Both ChargePoint and Blink have said they intend to become EBITDA positive by the end of 2024 — but that may bring them a bit too close to running out of cash for many investors.
That’s why lower inflation, interest rates, and an easing of capital market conditions is so important to these names. And while yesterday’s lower CPI print was very encouraging, there was more good news today with the release of the October Producer Price Index, which measures wholesale input costs.
In October, producer prices fell 0.5% month over month, much lower than expectations for a 0.1% increase, and the biggest drop since April 2020, in the early days of the pandemic. Excluding volatile food and energy prices, wholesale prices rose just 0.1%, compared to the 0.3% increase expected.
The lower reading was yet another encouraging data point for the Federal Reserve, which may be ending its interest rate hikes and may begin to cut them soon. That would be a relief to borrowers of all kinds, as well as companies looking to raise more money.
But these stocks are still risky
Despite the solid two-day really, any company inking losses like this is still a risky bet, even if the long-term picture for electric vehicles and charging stations is bright. After all, 10-year Treasury Bond yields are still around 4.5%. While inflation and interest rates may be easing, it seems unlikely we are going back to the extreme low-rate environment of the pandemic and post-financial crisis periods.
That’s when each of these companies went public, so investors in these stocks shouldn’t think they are about to reach all-time highs anytime soon. At some point, each of these three EV upstarts will have to prove their underlying profitability, with the ability to self-fund their growth investments.