Investing

Tiny EV Stocks Skyrocket While Tesla Fades - Here's Why

Eric Bleeker

Published: July 19, 2024 9:50 am

The past month has been absolutely outstanding for Tesla (Nasdaq: TSLA). The company jumped following news that its second-quarter deliveries exceeded expectations, and the stock continued running. However, comments made by the Federal Reserve on July 11th suddenly created a new environment across the investing world.

Tesla dropped 8.4% that day, shedding $70 billion in market cap. Across the week that followed, many EV stocks that had been struggling across 2024 saw some of these best gains of the year. We explore what happened in the market and what it means for EV stocks going forward.

Key Points in This Article

• Most EV stocks are still down dramatically from their late 2021 peaks.
• However, in the days after July 11th, many beaten-down EV stocks suddenly started to rally.
• The primary reason for this is a sector rotation into small cap stocks that has benefitted small EV stocks
• Looking ahead in the space, the next big event investors are watching is Tesla’s Robotaxi event. If you’re an EV investor and want to get the full background on why AI in self-driving cars is suddenly advancing so much, grab a copy of our brand-new free report “The Next NVIDIA.” You’ll also discover research reports on three leading stocks in the space.

Why Small EV Stocks Suddenly Jumped

Here are some of the highlights from the discussion between 24/7 Wall St. Analysts Austin Smith and Eric Bleeker.

• Since demand for EV stocks peaked in late 2021, it hasn’t been a fun ride. A leading name like Tesla has consistently traded for half its peak share price in late 2021. Rivian is down about 86% from those levels. 
• Key suppliers to the industry have seen a similar story. Yet, following comments from the Federal Reserve on July 11th, EV stocks started rebounding at a furious pace in the days that followed. What caused this rally?
• Looking at recent EV outperformance, we have a few categories we need to look at individually.
• First, there’s Tesla. The stock is up 37% in the past month. That’s largely thanks to Tesla’s Q2 delivery numbers, which came in just a hair under 444,000 and beat estimates. 
• Rivian is up about 64% in the past month, which has been a continuing rally after they received a $5 billion investment from Volkswagen. 
• Now, in the days that followed July 11th, we’re seeing new winners in the EV value change emerge.
• Tesla was down 8.4% last Thursday as tiny EV stocks started to soar. 
• Blink Charging was up 28% between July 10th and July 16th. Aehr Test Systems was up 15% across that time and then saw its shares further skyrocket after it reported outstanding earnings.
• Companies adjacent to EVs also saw the same jumps in that July 10th through 16th timeframe.
• PlugPower sells fuel cells that are an alternative to gas-powered vehicles and it was up 28%. Companies in the clean energy space like Sunrun, STEM, and SunPower were all up big in that timeframe as well.
• So why did a leading EV company like Tesla suddenly fall 8.4% in front of tiny EV plays seeing what was often their best 5-day run of the year?
• The answer lies in macro trends. 
• Tesla has been a stock in the QQQ – or Nasdaq-100 – that’s seen tremendous inflows in recent years. 
• When the Federal Reserve signaled last week that rate cuts were coming – and the market now expects 3 this year – that led to tremendous sums of money rotating from large cap funds like QQQ to small cap funds. 
• Those small cap funds are where stocks like Blink Charging and Aehr Test Systems are held. 
• Another factor is that smaller EV and clean energy stocks are among the most heavily shorted in the market. 
• Blink Charging is 21% sold short while Aehr Test Systems is 20% sold short. 
• Add is all up and we have something of a bifurcation right now around the size of stocks. 
• You’ll note Rivian – which is still relatively smaller at $18 billion – gained 13% from last Wednesday to Tuesday, while Tesla shares were down in that time. 
• If you’re an EV investor, the big factor to watch right now is the IWM – which is the Russell 2000 index. 
• If that continues to outperform, it’s likely the smaller EV stocks will rise with it. Heavily shorted ones will probably benefit additionally from short squeezes as well. 
• So there we go – there has been some good news in the EV market recently with Tesla’s orders and investments into Rivian. 
• But the dominant factor affecting share prices right now is where stocks fit into this sector rotation. And for the stocks seeing benefits from sector rotation, the most heavily shorted ones are generally seeing stronger gains. 

Transcript:

Eric, since demand for EV stocks peaked in about late 2021, it has not been a fun ride.

And a leading name like Tesla has consistently traded for half of its peak share price in late 2021.

Rivian is down about 86% from its SPAC.

And when we look at suppliers in the industry, we see a similar story, just a mountain of returns and then crashing down on the other side.

Yet the past week has seen a lot of EV stocks rebound.

So what is causing the rally?

What’s going on?

Why has the life been injected back into this sector?

Yeah, you know, Austin, we’ve got different categories for EVL performance, so we could unpack a little bit.

You’ve got Tesla as the close of trading on Tuesday had been up 37% in the past month.

That’s largely thanks to their second quarter delivery numbers, which came in just here under $444,000, and that was enough to beat estimates.

Then you’ve got Rivian, which is up 64% in the past month.

It has been continuing to rally after they received a $5 billion investment from Volkswagen.

But in the past week or so, we’ve seen kind of a changing in what the major winners in the EV value chain are.

Last Thursday, Tesla was down 8.4%.

That’s on July 8th.

11th.

And at the same time, a lot of tiny EV stocks start to soar.

So these names will include Blink Charging, which was up 28% in the past week at the close of Tuesday.

And then we have Air Test Systems, which makes equipment for the silicon carbide market that’s booming thanks to EVs.

It was up 15% in the past week.

And today on Wednesday, it is jumping an incredible amount.

I believe it’s up over 25% after earnings.

We could also talk about some companies adjacent to EVs.

Plugged Power, it sells fuel cells, but it’s obviously working on alternatives to gas-powered vehicles.

It’s up 28% that time, as well as clean energy stocks like Sunrun, STEM, and SunPower, all up big.

So why is a lean company like Tesla down at the time all the time?

Tiny EV plays are many cases seeing their best five-day return of the year.

The answer lies in macro trends.

Tesla’s best stock in the QQQ or NASDAQ 100 that’s seen tremendous inflows.

AUMs flowing into that index.

When the Federal Reserve signaled last week that rate cuts were coming and the market now expects three separate rate cuts this year, that’s led to tremendous sums of money rotating from large-cap funds like QQQ to small-cap funds.

Those small-cap funds are where stocks like Blink Charging and Air Test Systems are held.

Another factor is that smaller EV and clean energy stocks are among the most heavily shorted in the market.

Blink charging is 21% sold short.

Air test systems is 20% sold short.

Add it all up, and what we have right now, Austin, it’s a little bit of a bifurcation around the size of stocks.

You’ll note Rivian, it’s a smaller stock than Tesla, $18 billion.

An ad gained about 13% from last Wednesday to Tuesday at the same time Tesla shares were down.

If you’re an EV investor, the big factor to watch right now, you want to be watching the performance of IWM, which is the Russell 2000 Index.

If that continues to outperform, it’s likely these smaller EV stocks will rise with it.

Heavily short ones will probably outperform.

Benefit additionally from that short squeeze as well.

So Austin, there we go.

There’s been some good news in the EV market recently from Tesla’s orders to the investment in Rivian, but the dominant factor affecting share prices right now is where stocks fit in the sector rotation.

And for the stocks seeing benefits from sector rotation, the most heavily shorted ones are generally going to see stronger gains.

Eric, I love looking ahead to market dynamics like this and what is going to propel an entire sector or a class of stocks forward.

And that actually makes me think about the report that you just put together called The Next NVIDIA, which is thinking about the macro trends and how they will converge and the changing of the guard that can happen on which stocks outperform.

People in the EV space naturally go to Tesla.

They think about Tesla as, and it has been a wonderful performing stock over its lifetime, but in the last three years, it’s been a laggard and has been outperformed by much smaller stocks and other companies in the EV supply chain.

So now looking ahead towards AI and artificial intelligence, you’ve taken a similar look this report called the Next NVIDIA, which our viewers can access at video.nextnvidia.com and think about what is the next changing of the guard as far as stock returns in the AI space and which companies are poised to do well next as investor appetites change or as supply chains really start to build down when we prepare for this next super cycle of AI.

Yeah, I mean, here’s the bottom line.

The first cycle of AI, which was really pushing demand towards the AI chips that NVIDIA makes, it made NVIDIA a $3 trillion company.

It produced in a decade about 25,000% of returns.

It made anyone who bought NVIDIA rich, basically.

There’s a next step that’s coming, and that’s taking some of these clusters of GPUs, these huge supercomputers in AI, and it’s pushing them from a few thousand chips to potentially a million chips worldwide.

There’s going to be, we believe, very specific winners in this next stage.

This report’s all about laying out how to position yourself for this next wave of growth.

We have complete industry maps.

We have stock reports on some of our favorite stocks.

And most importantly, this report’s absolutely complimentary.

So if you’re watching this today and you’re curious in the AI space, you want more ideas in it, don’t delay because it will be available for a limited time only.

Type in that URL, put an email address for us to deliver.

We’ll send it right to you, absolutely no cost.

Austin, so I think everyone out there today should go ahead grab a copy while it’s available.