Electric cars or EVs are automobiles that run on electricity-powered engines. The EV manufacturers aim to replace gas-powered engines over time. The accelerated shift towards clean energy solutions globally will act as a major driver of top-line growth for EV manufacturers in the upcoming decade.

Tesla (TSLA) is the largest EV manufacturer in the world and recently touched a trillion-dollar valuation. However, this segment is large enough to accommodate both legacy manufacturers and new entrants such as Nikola (NKLA) and Workhorse (WKHS).

While the EV space is red hot right now, not every investment will lead to windfall gains. You need to analyze each company carefully before buying its stock. Let’s see if Nikola and Workhorse should be part of your EV portfolio right now.

Click here to checkout our Electric Vehicle Industry Report for 2022

Nikola

Valued at a market cap of $3.2 billion, Nikola has burnt massive investor wealth. It went public in 2020 and touched a record high of $65 per share in June 2020. Nikola stock is currently trading 90% below all-time highs. The company was accused of misleading investors which led to the departure of its founder, Trevor Milton, in Q3 of 2020.

In December 2021, Nikola delivered a pilot truck to Total Transportation Services. So, Total Transportation will first test the truck and may then order 30 additional vehicles this year if the results are satisfactory. Nikola claimed Total Transportation may order a total of 100 trucks by 2023 if the latter can avail of government subsidies to fund the purchase order.

Nikola also received an order from Heniff Transportation that bought 10 Tre BEV trucks while potentially increasing its total orders to 90 vehicles. Nikola’s Tre BEV trucks have a range of 350 miles and deliveries are expected to begin shortly.

Workhorse

Similar to Nikola, shares of Workhorse have also declined by 92% from all-time highs, valuing the company at a market cap of $495 million. Workhorse is also wrestling with multiple challenges that include a delay in shipment deliveries, management changes, vehicle recalls, and losing a major order from the U.S. Postal Service.

Back in 2017, Workhorse disclosed plans to manufacture its C-series electric-powered delivery trucks. These vehicles were delivered in 2020 and 2021 but it was far lower than initial estimates. After Workhorse lost a big-ticket order from the U.S. Postal Service, it recalled 41 C1000 delivery vans as the vehicles were not in compliance with safety standards. It also suspended future deliveries of the model.

Right now, Workhorse doesn’t have a single vehicle in production but aims to announce a new model in Q1 of 2022. The vehicle will then be delivered in 2023.

The verdict

Both Nikola and Workhorse can be considered as pre-revenue companies. Analysts expect Nikola to report sales of $132.7 million in 2022 while Workhorse might report sales of just $17 million this year.

I believe investors should not gain exposure to any of the two companies given their weak fundamentals, rising competition, and ongoing management issues. Automobile manufacturing is a capital-intensive process and the two companies will have to raise capital several times to fund expansion plans and benefit from economies of scale. There are several other EV stocks, such as Lucid Motors (LCID) and Rivian (RIVN), that I believe are better buys right now.

NKLA shares were trading at $7.62 per share on Thursday morning, down $0.25 (-3.18%). Year-to-date, NKLA has declined -22.80%, versus a -5.18% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

More...