7 EV Stocks Join Russell 2000: Are They Good Additions to Your Portfolio Too?

The annual Russell Reconstitution Day is often considered one of the busiest trading days of a year, wherein stocks get added or removed from Russell's family of indices. The 2021 Russel rebalance — which came into effect on Jun 28 before the opening bell — saw various electric vehicle (EV) stocks making an entry to the small-cap specific Russell 2000 Index, underscoring the soaring popularity of e-mobility amid changing dynamics of the auto industry. 

Among various electric and driverless technology-related stocks that have been added to the Russell Index, seven EV companies — most of which went public last year — joined the Index. These include Canoo Inc. GOEV, Fisker Inc. FSR, Hyliion Holdings HYLN, Lordstown Motors RIDE, Nikola NKLA, Arcimoto, Inc. FUV and XL Fleet XL. With these firms joining Russell 2000 and EV trends getting hotter by the day, do the stocks deserve a spot on your portfolio as well? Let’s analyze.

Wait-And-See Approach is Appropriate for Canoo

Canoo made its Nasdaq debut on Dec 22, 2020 by merging with Hennessy Capital Acquisition. The stock has declined around 47% since its IPO. The company is in the pre-revenue stage and plans to launch its first lifestyle vehicle in late 2022, following it up with a delivery vehicle in 2023 and sports vehicle in 2025.

On its investor day held in June, Canoo claimed to meet its commitment of commencing delivery of lifestyle vehicles in fourth-quarter 2022 by parallel pathing contract and owned manufacturing. The company’s CEO tried his best to restore investors’ lost faith in the stock because of fundamental changes in the business model (announced during fourth-quarter 2020 earnings call). Bank of America acknowledged the event as” relatively constructive’ while reiterating its ‘Underperform’ rating on the stock.

While Canoo has the proprietary skateboard technology platform in place, it remains to be seen how the company will be able to make the most out it. If you already own the stock, you may choose to stay invested; but we don’t advise you to invest in this EV maker at the moment because it doesn’t have a proven track record and has a long road ahead to build a strong name for itself in an overcrowded EV market. Canoo currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fisker is Not Convincing Enough

Fisker made NYSE debut on Oct 30, 2020 via a merger with Spartan Energy Acquisition, an affiliate of Apollo Global Management. The stock has surged around 90% since its IPO. The company is yet to begin production and has not generated any revenues to date. Fisker is set to begin production of its first vehicle, the Ocean electric SUV, in fourth-quarter 2022. The firm claims that its Ocean SUV has a range of 250-300 miles on a single recharge. 

Last month, the company announced an ambitious plan to produce what could be the world's first "climate neutral" vehicle, a car that will be built with minimum impact on the environment, spanning from how the parts and components are sourced and assembled to the way the vehicle is charged and recycled. The company plans to roll out the vehicle by 2027, which seems to be a rather moonshot goal. What’s more, it projects $13 billion of revenues by 2025.

Given that the company is still in the nascent stage and will take time to capture a niche in the EV landscape, there is a lot of uncertainty surrounding its future. High execution risk and mounting capex and R&D costs remain headwinds. Considering its overly ambitious goals, it would be prudent for investors to give the stock time to prove its mettle rather than jumping into buying it based on its promises. Fisker currently carries a Zacks Rank #4 (Sell).

Hyliion is Not Worth Buying at the Moment

Hyliion made debut on the NYSE on Oct 2, 2020 by merging with Tortoise Acquisition Corporation. The stock has declined 70% since its IPO. The EV startup intends to supply electric and hybrid powertrain solutions to truck makers. Hyliion’s biggest rewarding point is that it can retrofit its technology on the existing fleets. 

However, the firm has not generated any revenue yet. Inflated research and development costs on advanced technologies will continue to play a major spoilsport for its bottom line, especially till the firm doesn’t generate significant revenues.

While Hyliion claims that its business model is efficient, one should not forget that meaningful deliveries are still a couple of years away. Any possible delays in the delivery deadline and production challenges might create problems. As it is, the firm’s lofty valuation and high leverage raise a red flag. Considering the headwinds surrounding the firm, it’s prudent to avoid exposure to the stock now. Hyliion currently carries a Zacks Rank #4.

Bumpy Ride Awaits Lordstown

Lordstown made NASDAQ debut on Oct 26, 2020, after completing a reverse merger with DiamondPeak Holdings. The stock has declined 42% since its IPO. Boasting 600 horsepower and a range exceeding 250 miles on a single recharge, Lordstown Endurance is one of the most anticipated electric pickups. However, the company is in murky waters at the moment.

In March, Hindenburg Research issued a report accusing Lordstown of misleading investors about the demand for its upcoming electric pick-up truck. This was followed by SEC investigations on the allegations made by Hindenburg. In June, the probe concluded that the Hindenburg report was false for most significant matters, but it did point out flaws regarding the accuracy of statements pertaining to the pre-orders for the Endurance truck. On the same day, the news of Burns’ and Rodriguez’s (CEO and CFO of Lordstown) resignations surfaced.

What’s more, Lordstown recently warned that it may have insufficient capital to commence full-scale commercial production of Endurance. The company, in fact, raised doubts about its ability to meet financial obligations over the next year. The above-mentioned series of unfortunate events and challenges faced by Lordstown make its chances of survival highly speculative and questionable. The company carries a Zacks Rank #4.

Nikola is Only for High Risk-Tolerance Investors

Hydrogen truck maker Nikola got listed on Nasdaq after a reverse merger with VectoIQ on Jun 3, 2020. The stock has declined 47% since its IPO. Nikola saw grueling times last year, when its credibility was put to question, following the scathing report from Hindenburg Research, which slapped fraud allegations about the company. Following the fraud charges, the company’s CEO Trevor Milton resigned, which almost felt like an admission of guilt.

Milton’s exaggerated promises and tall claims fell through big time, putting investors in a fix. This massive reputational damage also prompted General Motors to scale down its deal with Nikola. Nikola’s Badger EV pickup — which was touted as the “most bad ass zero emission truck” by Milton — has been abandoned altogether. Notwithstanding Nikola’s partnership with CNH Industrial and deal with Arizona Public Service are encouraging, there’s high risk associated with the stock.

The firm neither possesses any breakthrough technology nor does it have any proven track record and fundamental strength. What it has though is a history of unfulfilled promises and tall claims, and lots to prove. Therefore, it should be avoided as of now. The company currently carries a Zacks Rank #4.

Arcimoto Serves as Another ‘Prove it First’ Story

This Oregon-based EV maker went public in September 2017, with its shares increasing 198% since IPO. The firm has managed to gain popularity on the back of its uniquely designed flagship product, the Fun Utility Vehicle (“FUV”), resonating well with the stock’s ticker. The firm’s five different product lines including its flagship “FUV”, Deliverator, Rapid Responder, Cameo and Roadster cater to different niches. On Jun 24, 2021, Arcimoto showcased its “FUV” and Deliverator during the Electric Mobility Symposium held in San Diego.

While it took years for the company to start vehicle production, rolling them out to customers will be another daunting task. Despite being in the business for more than a decade, Arcimoto is still struggling with losses and is yet to turn a profit amid rising R&D as well as SG&A costs. While it aims for an annual production capacity of 50,000 units within two years, one can’t ignore the fact that the firm does not have any track record of high-scale production.

While its future product lineup, strong balance sheet and partnership with Lightning Motorcycles for three-wheeled e-bikes bode well, weak operating results, high cash burn and lofty valuations raise concern. We don’t recommend buying shares of Arcimoto at the current price levels. The stock presently carries a Zacks Rank #3.

XL Fleet is Relatively a Safer Bet

XL Fleet made NYSE debut on Dec 22, 2020 after completing a merger with Pivotal Investment Corporation. The stock has declined around 52% since its IPO. The company does have a differentiated business model as it does not manufacture EVs, and is rather engaged in configuring existing commercial and municipal vehicle fleets with electrification solutions.

Unlike many of the other EV startups, XL Fleet is generating revenues and has a large customer base, underscoring its credibility. It registered $0.7 million sales in first-quarter 2021. Late last year, the company forecast revenues of $75 million for fiscal 2021. That may be difficult for the firm now, considering the supply chain issues and key shortages of raw materials, as notified by the company. However, XL Fleet believes the same to only cause temporary hiccups, and anticipates increased demand and revenue visibility in second-half 2021.

XL Fleet is working toward expanding the product lineup (to include BEVs and HFCVs) as well as serving capabilities and international footprint. However, mounting operating costs are acting as a killjoy. In the last reported quarter, the SG&A more than tripled from the year-ago levels. Even though XL Fleet expansion efforts may prove costly, it still stands a better chance to capitalize on the e-mobility boom than many of the budding EV companies at the moment.

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