The future of electric vehicles (EVs) is starting to sift out the winners and losers. That means you need to be careful when you choose companies in which to invest. That’s particularly true when it comes to EV penny stocks. These are stocks that are trading for $5 or less.
A low price isn’t a disqualification by itself. However, EV transition is hitting a few speed bumps. Affordability and range anxiety remain primary concerns of prospective consumers. However, with so much investment already having been spent to advance the technology, it’s not a sector that investors should avoid.
But that doesn’t mean you can’t be selective. Many EV startups went public at a time when near zero interest rates lowered the cost of capital. Today, it’s a more complicated borrowing environment. And don’t be fooled, many of these companies are still going to need massive amounts of capital before they can produce cars at a profitable scale.
Let’s look at three EV penny stocks that investors would be wise to avoid, but one that may be worth a speculative buy.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) is a meme stock among EV penny stocks. The stock caught the interest of many speculative investors. Yet, many have been burned by two reverse stock splits in the last 12 months. That includes a massive 1-for-100 reverse split in December 2023.
And still, the issue for Mullen Automotive remains one of cash burn. Recently, the company was awarded an order for 40 urban delivery vehicles from Antidoto SA, a Swiss company that has a focus on food delivery. The initial order is worth $440,000. That’s more revenue than the company brought in for all of 2023. However, the company’s operating expenses exceeded $377 million in 2023.
And despite MULN stock being down 99% in the last year, short interest remains above 18%. That, combined with the fact that only about 11% of the stock is owned by institutions, makes this a hard lift for investors.
Canoo (GOEV)
Canoo (NASDAQ:GOEV) has an interesting story but also struggles with heavy dilution. The company went public as a special purpose acquisition company (SPAC) to much fanfare. At the time, many analysts had a similar message of caveat emptor – let the buyer beware. It was going to take a while for the company to generate revenue and in the duration, it was going to burn a lot of cash.
Fast forward to 2023 and investors can see that the company generated $886,000 in revenue for the year. However, it posted an operational loss of over $302 million. That loss was less than the prior year. But the company’s management is now expressing a lack of confidence that the company can continue as a going concern.
That means, if the company does survive, more dilution is in store for shareholders. A reasonable amount (approximately 32%) of GOEV stock is owned by institutions. However, sellers outnumbered buyers by more than 4-to-1 in the last 12 months and short interest is over 22%.
Nio (NIO)
Trading at $4.92 per share at the time of this writing, Nio (NYSE:NIO) just barely makes the threshold of EV penny stocks. But is it a buy?
Unlike the other two EV stocks to sell on this list, investors should have fewer concerns about Nio moving forward as a going concern. The company has the backing of the Chinese government. And it’s in line to receive a portion of the 6 billion yuan ($830 million) the government is putting into solid-state battery production.
However, Nio is burning money as it fails to capture market share in China. While the company’s deliveries of 15,620 vehicles in April was up 134% from 2023, it’s approximately the same as the 14,000 deliveries from April 2022. That may be a function of pricing. Nio has been competing in the premium segment of the market, the area that remains under the most pressure.
The Biden administration’s proposed tariffs on Chinese EVs effectively shuts them out of the U.S. market. And it could derail the company’s expansion efforts into Europe if the EU decides to impose its own tariffs.
ZEEKR Intelligent Technology (ZK)
ZEEKR Intelligent Technology (NYSE:ZK) is one of the companies that’s been part of the relative boom in initial public offerings (IPOs) in 2024. It is a subsidiary of Geely Automotive (OTCMKTS:GELYY). However, since its market debut ZK stock is down about 4.4%.
That may be a function of poor timing with the entire sector under pressure. But the company is more than holding its own. From March 2021, when the company was incorporated, through December 2023, the company has delivered a total of 196,633 vehicles from its portfolio of five models. Also, investors are bullish on the company’s focus on innovation.
Should you jump into ZK stock? That depends on your risk appetite. However, it may be wise to wait at least until the company reports its earnings for the first time. This will give you an opportunity to see if the company’s performance matches the analysts’ rhetoric.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Chris Markoch did not have (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.