Why Tesla and other EV stocks rocketed higher in July

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

July was a good month for the stock market in general, with the S&P 500 index jumping over 9%. But some electric vehicle (EV) stocks significantly outpaced that gain. Shares of sector leader Tesla (NASDAQ: TSLA) jumped 32.4% during the month, while the stocks of start-ups Lordstown Motors (NASDAQ: RIDE) and Canoo (NASDAQ: GOEV) soared 41.8% and 87%, respectively, according to data provided by S&P Global Market Intelligence.

So what

Tesla shares have now increased more than 45% since late May. The jump in the month of July came as Tesla reported second-quarter earnings that showed the company was resilient even in the face of several headwinds. Its second-quarter revenue increased 42% year over year, but was lower than the two previous quarterly sales results. Considering supply chain issues that most global automakers are also facing, as well as COVID-19-related production delays and sales impacts from lockdowns in China, the results were received positively. 

Now what

These challenges also come as Tesla works to ramp up production at its two new factories in Texas and Germany. CEO Elon Musk had recently said those plants were burning cash, but Tesla still generated free cash flow of $621 million in the second quarter. That helped put some concerns to rest, and it was also taken as positive news for Tesla competitors. 

Lordstown and Canoo stocks outperformed Tesla in July on more than just sector tailwinds. Both businesses had been in danger of failing, but managed some key moves to continue with plans to operate and grow. 

Lordstown shifted its strategy and formed a strategic partnership with electronics manufacturer Foxconn. Foxconn purchased Lordstown’s manufacturing facility and will build the electric Endurance pickup truck for the EV company. The asset sale provided Lordstown needed capital, and the two companies intend to expand their joint venture for future product collaboration.

Canoo reported a net loss of $125 million in the first quarter, and it was down to just $104.9 million in cash and cash equivalents as of March 31, 2022. But in July it announced two new deals that may have saved the company. On July 12, it announced an agreement with Walmart. The retail giant agreed to purchase 4,500 of Canoo’s electric lifestyle delivery vehicles (LDVs), with an option for a total of 10,000 units to support its e-commerce business. Just two days later, Canoo said the U.S. Army agreed to take a vehicle “for analysis and demonstration.” Investors hope this could presumably result in a business relationship in the future. 

While both Lordstown and Canoo seemed to get good news last month, it should be noted that the outsize stock moves came after the stocks had hit all-time lows heading into July. Both companies’ market capitalizations had fallen below $500 million at that time. The bounce reflected hope that the companies will survive, but investors shouldn’t forget they remain very speculative investments. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Tesla and other EV stocks rocketed higher in July appeared first on The Motley Fool Australia.

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More reading

Howard Smith has no position in any of the stocks mentioned.  The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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