Why Electric Vehicle Stocks Were on Fire on Monday

Shares of electric vehicle stocks started off on the right foot this week after reports emerged that President Trump's administration will look to lessen regulatory burdens for autonomous driving. It's not clear exactly what that means, and Elon Musk's involvement is a point of interest here, but the market reacted positively, at least for a while.

Lucid (NASDAQ: LCID) stock jumped as much as 9.5% in early trading, while Rivian's (NASDAQ: RIVN) shares were up 6.6%, and EVgo (NASDAQ: EVGO) jumped 15.8% near the open. The stocks gave up some of those gains, but were up 5.7%, 0.4%, and 7.5%, respectively, at 3:30 p.m. ET.

The EV roller coaster

It's been a wild ride for EV stocks since President Trump's election. At first, investors thought it would lead to an economic boom, which would be good for EV sales. Then the narrative shifted to Trump cutting EV subsidies, including the $7,500 EV tax credit that's helped make vehicles more affordable.

Today, the narrative shifted to autonomous driving, which is becoming more common in small steps, but Tesla (NASDAQ: TSLA) hopes to push forward with its FSD software.

The challenge for Tesla has been the piecemeal nature of regulation in states across the country. If the company wants to launch a nationwide autonomous driving service, it can't go state by state getting approval. Today's speculation is that Trump will solve this.

While that's the hope, the details are sparse. Regulations would still be needed for autonomous driving, and it's not clear that Tesla, Rivian, or Lucid are ready to take autonomous driving mainstream.

More headwinds ahead

While today was good for EV stocks, the future may not be as bright.

I mentioned the uncertainty around the $7,500 EV tax credit, but there are also subsidies for battery and EV production and grants related to manufacturing that could be pulled back.

Another factor to consider is the losses each of these companies is reporting. As the EV market gets more competitive and fewer subsidies flow in, these losses could grow.

LCID Net Income (TTM) data by YCharts

Lucid and Rivian, in particular, haven't shown the ability to generate even a gross profit on their production. I'm not sure how they will get to profitability, even in a world of autonomous vehicles.

Fundamentals versus speculation

The market is behind, driven by speculation in a number of areas, including electric vehicles. And that speculation can be caused by President Trump's comments or simply reports on who may be winners and losers in the new administration.

But the fundamentals tell a very different story. EVs are getting more competitive, and companies are burning through billions of dollars trying to scale their businesses, which will drive prices even lower. The path to profitability isn't clear for companies like Lucid and Rivian.

I think days like this are a time to take chips off the table and look for better values in the market. It's not likely the next administration is more friendly to EVs than the last, and even then, there wasn't much profit to go around.

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.