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The Zacks Analyst Blog Highlights: NKLA, LI, XPEV, NIO and GM

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For Immediate Release

Chicago, IL – December 2, 2020 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Nikola Corp. (NKLA - Free Report) , Li Auto (LI - Free Report) , XPeng Inc. (XPEV - Free Report) , NIO Inc. (NIO - Free Report) and General Motors (GM - Free Report) .

Here are highlights from Tuesday’s Analyst Blog:

EV Stocks Take a Hit: NKLA-GM Deal Update Throws Question Marks

Despite the fact that the coronavirus pandemic is taking a toll on auto sales, electric vehicle (EV) stocks have had a crazy run on the bourses as investors are betting big on the future of e-mobility. The eye-popping gains have gotten the stocks’ valuation out of hand. It’s high time for some of the stocks to cool down in the stock market.

Yesterday, most EV names including Nikola Corp., Li Auto, XPeng Inc., NIO Inc., Tesla and Green Power Motor Company dropped sharply. There was much selling pressure in the EV industry yesterday as General Motors scaled down the deal with Nikola. Moreover, Beijing EV investigation, Hindenburg Research’s accusations against Kandi, and Citron’s allegation against Blink Charging are seemingly affecting the entire e-mobility industry, thereby sending most of the EV stocks downhill.

GM Pulls the Plug on Nikola Deal, Works Out a Revised Pact

Shares of Nikola fell as much as 27% yesterday as General Motors chose to back out from a deal announced in September, which entailed the U.S. auto giant to acquire 11% in the electric truck startup. Per the deal, General Motors would have aided Nikola in engineering and manufacturing Badger, a fully-electric and hydrogen fuel-cell electric pick-up truck.

Nonetheless, the deal was put on hold a few days later amid serious allegations from Hindenburg, which claimed that Nikola misled investors about its EV proprietary technology, stating that it was purchased from another company. Following Hindenburg’s allegations, Nikola’s CEO and founder Trevor Milton resigned from the company, which further dampened investors’ faith in the firm and felt like an admission of guilt.

With such developments raising questions about Nikola’s legitimacy, General Motors is seemingly not willing to take any risk. It withdrew from the previously planned partnership and instead announced a reworked agreement. Per the revised proposal, General Motors has inked a non-binding memorandum of understanding to supply hydrogen fuel cells to Nikola.

The U.S. auto major would no longer manufacture Badger trucks for Nikola. In fact, Nikola’s Badger EV pickup project has been abandoned altogether and the company will refund all the deposits for the same. While General Motors currently sports a Zacks Rank #1 (Strong Buy), Nikola carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

What Else Seems to be Hammering EV Stocks?

Shares of Kandi plummeted more than 28% yesterday after a negative report from Hindenburg, which accused that the China-based EV firm falsified revenues and faked sales to undisclosed related parties. The research firm identified that nearly 64% of Kandi’s sales over the past year have been to undisclosed affiliates.

Per Hindenburg’s report, the company’s largest customer shares a phone number with a Kandi subsidiary and shares an executive with Kandi. This investigation will definitely cause irreparable damages to Kandi's reputation and affect the company’s ability to raise funds in the future.

Around a week back, Citron Research called out EV charging station stock Blink Charging a ‘total scheme’. It accused Blink Charging for lack of real revenues and securities fraud in one of its tweets. Since then, shares of the company have declined almost 25%. Yesterday, the stock declined nearly 10%.

China-based high-flying EV stocks including Li Auto and Xpeng also tanked around 9% yesterday. The sell-off can be attributed to the news of domestic regulatory scrutiny into the EV sector.The National Development and Reform Commission of China directed its local officials to investigate new energy vehicle projects related to property developers, Evergrande Group and Shenzhen Baoneng. While this does not directly impact Li Auto or XPeng, it signals the government’s desire for greater regulation of the country’s EV players. The government’s probe in China could impede the prospects of the red-hot domestic EV market.

Is the EV Bubble Bursting?

Investors have been simply obsessed with the EV market. The fear of missing out has caused investors to bet heavily on many companies in the EV sector, to an extent that they have looked past the fundamentals of some firms. Investing based on speculation on how the business will evolve in the future has driven some of the EV stocks to insane heights. While there is a lot of hot air pumping up in the EV industry, quite a few stocks appear over inflated and the bubble might just be waiting to burst.

Indeed, the EV industry is one of the most happening industries currently and offers solid upside potential on the back of climate change concerns, stricter emission rules, favorable government regulations and improvement in EV infrastructure on the back of superior technologies. However, its time investors realize that not all EV players will keep on registering gains. EV stock buying frenzy without considering the stocks’ fundamentals could result in massive loses down the road.

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