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The EV Sector Is Promising, But It’s Not Without Volatility

A high-growth sector tends to feel new and exciting, but even the most promising industries are fallible. The EV sector, for one, experiences stock market volatility like any other.

Brands like NIO, Lordstown, Rivian and Workhorse have recently showcased the weakness I’m talking about, and there are key signs for investors to look out for.

The SPAC is back — should investors be wary?

A special purpose acquisition company (SPAC) is a blank-check firm literally built for acquiring another company. Typically, the holding company performs a reverse merger with a startup of some sort in order to take them both public under the startup’s name. It’s a viable way to bypass the lengthy process involved in a traditional initial public offering (IPO).

As of March 19, 2021, SPACs had already raised $87.9 billion in initial public capital. That amount is more than all of 2020 combined. A huge spike in SPAC popularity is a good thing in many ways (for one, shares tend to be more affordable than those of traditional IPOs). However, a meteoric rise is reminiscent of a bubble about to burst. 

One EV busmaker, ProTerra, will soon be taking the route public through ArcLight Clean Transition Corp. (NASDAQ:ACTC) in a deal worth $1.6 billion. ChargePoint, EVgo and Lion Electric are all upcoming SPACs in 2021. Lordstown (NASDAQ:RIDE) and QuantumScape (NYSE:QS) are already on the market.

Investing in a fresh-faced SPAC at the wrong time can land you on the wrong side of stock market volatility. Watch the trends, news and input from analysts. In short, do your due diligence.

Considering the source of data in the EV sector

Dealing with corporations is not cut and dry, especially when there are billions on the line. The Shares for Lordstown have dipped 62.37% from February 11 to April 6, 2021. The reason for this is a report from Hindenburg Research, a scathing claim that Lordstown has faked the majority of their pre-orders and many of their orders won’t go through.

But it’s always important to consider the source of your information. Hindenburg Research just so happens to be a short seller with a vested float in Lordstown. This means they profit when Lordstown shares dip. Of course, it’s illegal for them to publish libel, so there has to be some sort of legitimate research behind their claims that Lordstown is misleading investors. However, any investor should know not to take what anyone says—especially a short seller—at face value.

Even one of the sources that Hindenburg uses, E Squared Energy CEO Tim Grosse, has come forward saying they do, indeed, plan on fulfilling all of their reserved orders. Grosse says these numbers are not fakes, at least for his fleet.

If anything, it just goes to show that everyone has a motive. As a retail investor, yours is to make smart investing decisions in the EV sector and beyond that cater to your short- and long-term goals. For short sellers, it’s to make millions.

High growth does not make a company immune from stock market volatility

A lot of high-growth companies are claiming soaring valuations. This includes industries that have seen a drastic improvement during the COVID-19 pandemic (i.e. single family housing real estate tech companies like Compass or food delivery operations like Deliveroo). Alas, a high level of growth in the moment does not protect from stock market volatility, and NIO (NYSE:NIO) is evidence.

NIO is a Chinese brand within the EV sector. Shares are down 26.51% year-to-date. The company is experiencing earnings losses (at a rate of $0.16 per share for Q4 of 2020) which is a sign that their soaring growth is being tamed. With investors betting on a heightened trajectory, this has led to a marked sell-off. 

There’s also the issue of the American economy. NIO is a Chinese stock that trades in the US using American depositary receipts. Americans are worried about the economy following the major COVID-19 relief package (a concern of inflation for some) and rising bond yields (a concern of high interest rates, for others). Both inflation and high interest rates tend to lead to reduced risk exposure, which equates to stock market volatility.

The bottom line on the EV sector

At the end of the day, the EV sector is part of our future—like it or not. However, it’s hard to say what form we’ll see the EV market really evolve into. Stock market volatility will always be a part of the picture, but it’s up to investors to make smart decisions now and maintain a long time horizon. 

 

 

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Rachel Curry
"Hey! My name's Rachel Curry and I'm a full-time writer who loves telling the world's stories as much as hanging with my dogs (and that's saying a lot). A University of Delaware graduate, I've traveled extensively, living everywhere from Ireland to Thailand. Bylines include Matador Network and Delaware Today."

    1 Comment

    1. great article, I really feel the SPACs are exciting.

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