December 8, 2023

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Electric vehicle startups poised for a weekly gain after a sharp rally

Electric vehicle startups poised for a weekly gain after a sharp rally

June 16 (Reuters) – U.S. electric vehicle startups were poised for huge weekly gains on Friday after their shares rose sharply over the past few sessions, doubling the value of companies such as Nikola (NKLA.O).

The rise in electric vehicle stocks came without any clear corporate news or catalyst, prompting many analysts and traders to point to the possibility of pressure in the shorted stocks.

For example, Lordstown Motors (RIDE.O) has a short interest of 16.5%, according to S3 Partners. Other big gainers like Nikola and Workhorse Group (WKHS.O) have short interests of 21.7% and 23.9%, respectively.

Reuters graphics

Used car retailer Carvana (CVNA.N), another shorted stock, also posted strong gains that raised its value by about $1.38 billion this week.

“We see this every time the market gets hot,” said Dennis Dick, a trader at Triple D Trading.

“Carvana probably started this, it’s up over 100% in two weeks on a short press. Smaller names with very short interest are now following suit.”

The gains added nearly $500 million to the EV startup’s collective market capitalization and coincided with a record winning streak in market leader Tesla (TSLA.O), whose stock movement often weighs on other companies in the sector.

June jump in small electric stocks

retail interest

Retail investors also invested in EV stocks, with retail flows tracker JP Morgan showing Nikola was the fifth most traded US stock by these traders on Thursday.

Nikola and Lordstown have charted a flurry of bullish options activity in recent days as traders bet on further gains.

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On Thursday, more than half a million options contracts traded in Nikola, making the relatively small company the eighth most active individual stock in the options market, according to Trade Alert data.

A stock rally could help Nikola weather the risk of being delisted after it received a warning in late May from Nasdaq that its share price was below the $1 low.

Nikola stock is down 7% on Friday and is trading at $1.30. Despite the decline, the stock is on its way to stay above the lower level for the third consecutive session.

A stock will regain compliance with Nasdaq benchmarks if it trades above $1 for 10 consecutive days.

Workhorse and Lordstown are up nearly 1% and 14%, respectively, while Carvana is down about 6% at the end of the week it was up 30%.

According to Refinitiv data, Nikola stock has a 12-month forward price-to-sales ratio of 3.21, compared to Workhorse’s 1.38 and Tesla’s 7.23.

However, there are still many challenges facing electric vehicle startups.

High interest rates and high inflation limited their access to financing at a time when efforts to increase production were already shrinking companies’ cash reserves.

Reuters graphics

Additional reporting by Aditya Soni and Akash Sriram in Bengaluru; Additional reporting by Saqib Iqbal Ahmed in New York. Edited by Shounak Dasgupta

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