Even though the EV industry is expected to grow substantially over the long term thanks to increasing consumer demand and government policy support, the global semiconductor chip shortage could mar its growth in the near term. Against this backdrop, we think it is wise to avoid Nikola (NKLA) and Canoo (GOEV) given their weak financials and bleak growth prospects. Read on.Electric vehicles (EVs) are expected to revolutionize the automotive industry. According to a Research Dive report, the EV market is expected to grow at a 19.8% CAGR between 2021 -2028. However, a global semiconductor chip shortage makes the industry’s near-term growth prospects bleak.
Even though the U.S. government has been taking several steps to address the chip shortage, there is speculation that the current shortage could last for another two years. So, the EV industry could continue to face production issues. Investors’ pessimism regarding the EV space is evident in the Global X Autonomous & Electric Vehicles ETFs’ (DRIV) 1.9% returns over the past three months versus the SPDR S&P 500 Trust ETF’s (SPY) 6.6% gains.
Given this backdrop, we think it wise to avoid Nikola Corporation (NKLA) and Canoo Inc. (GOEV). In addition to the industry headwinds, these companies’ weak financials may cause their shares to continue declining.