What occurred 

The final 24 hours have introduced two less-than-bullish earnings stories for the electrical car trade and it is pulling your entire section decrease in buying and selling on Wednesday. Rivian (RIVN -19.20%) began the pattern when it launched earnings after the market closed on Tuesday, however Workhorse Group‘s (WKHS -14.32%) report this morning did not assist. 

Shares of Workhorse are down 12.6% at 2 p.m. ET, Lucid Group (LCID -6.96%) has fallen 6.7%, Canoo (GOEV -5.13%) is down 2.7%, and battery provider QuantumScape (QS -7.64%) has dropped 6.8%. Let’s dig into why the market is instantly bearish on EVs. 

So what 

Workhorse’s internet gross sales for the quarter have been $3.4 million, working loss was $39.7 million, and internet loss was $38.7 million, or $0.24 per share. Analysts have been anticipating earnings of $0.18 per share. 

Over at Rivian, the corporate continues to extend manufacturing however not as rapidly as traders anticipated. Administration stated the corporate will produce about 50,000 automobiles in 2023 whereas expectations have been for over 60,000 items. However demand could also be an excellent larger downside. 

After constantly releasing preorder numbers in quarterly letters to shareholders, the corporate stopped giving that knowledge. In November 2022, the corporate stated it had over 114,000 preorders however solely stated it had “a internet preorder backlog that extends into 2024.” That implied over 50,000 preorders, however traders do not know the way many individuals have canceled orders in the previous few months. 

Lucid is one knowledge level traders have and orders fell from over 34,000 on the finish of September 2022 to over 28,000 on the finish of December 2022. It is affordable to suppose Rivian’s order guide can be dropping. 

The electrical car story has lengthy been about development, however now traders have to begin worrying about demand. If demand does not match the fast enhance within the provide of electrical automobiles then the trade shall be in monetary bother. Based mostly on at this time’s inventory actions, traders suppose that shall be a actuality before later. 

Now what 

The electrical car trade is beginning to see some main cracks simply as corporations ramp up manufacturing. And for QuantumScape, this finish market weak point could not have come at a worse time. 

This has all the time been a high-risk section of the market, however it seems to be even higher-risk now. Whereas corporations aren’t seeing stock pile up, they’re seeing money burn enhance and they’re going to be in an unsustainable place finally if they can not promote automobiles profitably. 

Each auto firm on the earth, new or legacy, has been constructing electrical car provide over the past 5 years and now there could also be decrease demand for automobiles general and lower-than-expected demand for electrical automobiles. Traders ought to tread very rigorously in EV shares and it is not a foul thought to only watch from the sidelines till the true winners emerge.