Why Electric Vehicle (EV) Stocks Skidded Into Losses on Wednesday

Not so long ago, electric vehicle (EV) stocks were the assets that could do no wrong. Despite the very many hiccups and challenges associated with the industry, EVs were the future of human mobility. In recent months, though, there's been growing skepticism about this. The novelty of the not-so-new-anymore technology has worn off, and negative news from some top manufacturers has turned off both consumers and stock investors.

So, it doesn't take much these days to dampen sentiment about EV stocks. Moderately discouraging quarterly results from China's only two profitable EV companies on Wednesday spread discontentment throughout the sector. American EV stocks took some hits as a result, with vehicle makers Rivian (NASDAQ: RIVN) and Nikola (NASDAQ: NKLA) declining by nearly 5% and almost 10% in price, respectively, while next-generation battery developer QuantumScape (NYSE: QS) closed the day 5.5% lower.

Discouraging news from across the Pacific

Dominating the EV news headlines on Wednesday were the latest sets of fundamentals from Li Auto (NASDAQ: LI) and BYD (OTC: BYDD.F) . Neither company's presentation was impressive.

Li Auto, which specializes in extended-range EVs (EREVs) that are actually hybrid models, topped the consensus analyst estimate for profitability in its second quarter and more or less matched that for revenue. What was more of a concern was the decline in margins, the direct result of a drop in prices.

Does that sound familiar? Price cuts to top models have been a feature on the U.S. market in recent months, most notably with sector bellwether Tesla 's series of chops. Generally speaking, a healthy industry with somewhat limited competition shouldn't have to reduce the prices of its products. But the EV market throughout the world these days is stuffed full of competitors at a time when consumer interest in EVs seems to be on the wane.

Li Auto's Chinese peer BYD managed to nearly double its revenue year over year in its own second quarter. Zooming out to the first six months of the year, however, its outwardly robust net income of 13.6 billion yuan ($1.9 billion) didn't come close to meeting the average analyst expectation of 17.9 billion yuan ($2.5 billion). Investors reacted accordingly to this wide miss.

Inflated expectations

Although both Li Auto and BYD remain well in the black and continue to show lively growth at times, they're not the turbo-charged economic pace-setters they once were. The mismatch between analyst estimates and company performance was stark in certain instances, demonstrating that professionals and investors alike might need to recalibrate their expectations for the EV sector as a whole.

Before you buy stock in Rivian Automotive, consider this: