Tesla’s Winning Streak Echoes in EV Startups

Electric Vehicle (EV) startups such as Nikola and Lordstown Motors are racing ahead, leaving a blazing trail on the stock market. Without an obvious reason or catalyst, these startups, often struggling with cash, are recording considerable weekly gains. Many attribute this to a potential squeeze in the high-profile, shorted stocks.

Nikola, which has seen its value more than double this week, has a short interest of 15.7%, says Refinitiv. Other significant risers include Lordstown and Workhorse Group, with short interests of 15.2% and 24.3% respectively.

Alongside these EV startups, the used-car retailer Carvana, another highly shorted stock, has also achieved strong gains. This has resulted in an almost $1.38 billion value increase this week alone, while the EV startups have collectively added over $500 million to their market value.

This surge aligns with Tesla’s record streak. Tesla, being the EV market leader, has a strong influence on other firms in the sector. Interestingly, retail investors have shown considerable support in this stock rally.

On Thursday, Nikola ranked as the fifth most traded U.S. stock by retail investors, as per J.P. Morgan’s retail flows tracker. Carvana and Faraday Future, a smaller EV startup, also featured among the top 20 stocks traded by retail investors.

This upward trend could help Nikola avoid a potential delisting threat. Nikola had received a notice from Nasdaq in late May as its share price had consistently been below the $1 minimum level for a 30-day period. Now, Nikola’s shares are looking up, with a 20% increase before the bell on Friday to $1.65, poised to exceed the minimum level for the third consecutive session. Nikola can regain compliance with Nasdaq’s norms if it trades above $1 for 10 consecutive business days.

However, these EV startups still have many hurdles to overcome. Both Nikola and Lordstown have reportedly seen year-to-date stock price drops of 35% and 75%, respectively. High inflation rates and rising interest rates have limited their funding access just when ramped-up production efforts are draining their cash reserves. Furthermore, Lordstown is entangled in a dispute with investor Foxconn, who is threatening to cancel a vital $170 million funding for the EV maker.

Photo courtesy of Lordstown Motors.