What occurred 

Concern of a weaker economic system is making its method to the electrical automobile (EV) business at this time and that is inflicting a serious sell-off in EV shares. Lucid Group (LCID -9.38%), Rivian Automotive (RIVN -4.62%), and ChargePoint Holdings (CHPT -6.10%) are all dropping huge and this comes simply earlier than their earnings season. 

Shares of Lucid fell as a lot as 10.2% at this time. Rivian was down 6.2%, and ChargePoint was down as much as 6%. The shares are down 9.5%, 5.3%, and 5.4%, respectively, as of 1:15 p.m. ET. 

So what 

Two earnings reviews this morning are pointing to slower shopper spending. Walmart mentioned it expects same-store gross sales to rise 2% to 2.5%, under expectations of three% development. Dwelling Depot‘s income rose simply 0.3% and the corporate expects 2023 income to be flat.

On high of a doubtlessly weak shopper spending surroundings, rates of interest are rising sharply at this time, which makes borrowing cash for a brand new automobile tougher. Ten-year authorities bonds within the U.S. rose 14 foundation factors at this time to three.95%, Canadian yields rose 12 foundation factors to three.41%, and Mexican bonds jumped 24 foundation factors to 9.38%. 

If customers are feeling stress and rates of interest proceed rising it may considerably injury the demand for the costly electrical automobiles that Lucid and Rivian make. Lucid already introduced a drop in reservations final quarter and that pattern could proceed. 

Fewer electrical automobiles on the street would imply much less demand for chargers, which is why ChargePoint is down. And better charges could be a drag on the enterprise as nicely. 

Now what 

Lucid reviews earnings after the market closes tomorrow and Rivian reviews on Feb. 28, so it will not be lengthy earlier than traders hear how their gross sales are going and the way a lot demand there may be early in 2023. 

The larger drawback is that each one three firms are burning money at an unsustainable stage and falling inventory costs give them fewer methods to boost funds. 

RIVN Internet Revenue (TTM) knowledge by YCharts

The market will probably be unstable for development and EV shares for the foreseeable future as a result of there are a number of components pulling the businesses in several instructions. Demand for EVs is rising, however the Federal Reserve can be attempting to sluggish the economic system to ease inflation and customers are reacting by spending much less. Corporations like Rivian and Lucid really feel the brunt of that. 

What’s working in these firms’ favor is that any financial weak spot in 2023 will probably be at a time when each Lucid and Rivian are constrained by manufacturing. If they will ramp up manufacturing successfully and are available out in a stronger economic system with a worthwhile product they will be nicely positioned. That is the bullish funding thesis, anyway. 

ChargePoint could have extra challenges. It is serving a commodity (electrical energy) right into a extremely aggressive charger market and it is nonetheless dropping cash. I do not see the long run getting brighter for charging shares, even when EVs preserve promoting at rising charges. 

As we speak, EV shares are feeling the ache from the market’s fears about spending and rates of interest. However the long-term image hasn’t modified and the market’s sentiment can change tomorrow. I am not altering my funding thesis, however earnings will probably be essential for all three firms.