Why Lucid, Fisker and Nikola stocks are crashing this week

What happened

It hasn’t been a good week for equities overall, with the S&P500 the index down more than 5% and potentially heading for its worst weekly performance since March 2020. Tech and growth stocks also continue their decline in 2022, with Nasdaq well into bearish territory, down more than 30% year-to-date.

Speculative electric vehicle (EV) stocks led the way. This week, Lucid Group (LCID 3.34%), Fisker (FSR 4.82%)and Nicholas (NKLA 8.19%) are good examples. Electric vehicle startups posted weekly declines of 12.9%, 7.7% and 8.4%, respectively, late Friday morning, according to data provided by S&P Global Market Intelligence.

So what

The macroeconomic environment kept investors away from high-risk securities. Lucid, Fisker, and Nikola are in a very capital-intensive business, and Fisker hasn’t even started production yet. While Lucid and Nikola expect significant revenue for the first time this year, there are so many unknowns tied to their future that investors are fleeing these startups. The selloff gained momentum this week with the Fed’s decision to raise benchmark interest rates faster than expected. Some investors interpret this as a sign that a recession is inevitable.

Now what

With all the macro concerns, it looks like there is still huge growth to come in the electric vehicle sector. But it seems that even some corporate executives are taking a more cautious approach. Lucid ended the first quarter with nearly $5.4 billion of cash on its balance sheet, but this week it took steps to further strengthen its financial flexibility. The company entered into a new $1 billion revolving credit agreement with several lending institutions. While Lucid’s chief financial officer, Sherry House, said its existing cash balance is expected to carry it through 2023 with its growth and investment plans, the new facility provides an additional five-year borrowing capacity.

Nikola takes a different approach to bolstering his finances during more uncertain times. The company is asking shareholders to approve a proposal for its next annual meeting to authorize an increase in the number of shares outstanding from 600 million to 800 million. It would give it the chance to raise new capital, and the company issued a public call this week for shareholders to vote for the proposal. It came after he was forced to adjourn his meeting on June 1 when the measure failed to get enough feedback from voters to ensure it passed a majority of the shares.

The market for electric vehicles is still expected to grow rapidly. But a recession, or even a less severe economic downturn, will likely have an effect on the pace of growth. This week, investors are selling start-ups like Lucid, Nikola and Fisker as they may be in weaker financial condition than previously thought due to slowing global economies.

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