Lotus Technology (LOT) stock is risky: will earnings change that?

2024-04-07 02:20:17 ET

Lotus Technology (NASDAQ: LOT) stock price will be in focus this week as the company publishes its first earnings as a publicly traded company. The management will hope that these earnings will boost a stock, which has plunged by over 58% from its highest level in February, erasing almost $2 billion in value.

Lotus Technology earnings

The electric vehicle industry is going through major headwinds as the industry goes through saturation and margin compression. All EV companies, including the mighty Tesla , have all plunged hard this year.

Lotus Technology is an EV company partly owned by Lotus Group, the iconic British luxury vehicle manufacturer. Lotus Group is mostly owned by Geely, the Chinese company that owns Volvo and Polestar.

Lotus Technology completed its SPAC merger in February, briefly valuing the company at over $7 billion. This listing was part of a strategy by Geely to take most of its companies public.

I believe that these results will not be good. The most recent results showed that LOT had revenues of $130 million in the first six months of the year. China accounted for $93 million of sales followed by Japan and the UK.

The company is still burning huge sums of money. Its net loss in the first six months of the year stood at over $353 million. This loss-making streak likely continued as the company continued investing huge sums of money. Lotus Technology lost over $724 million in 2022 as it invested in production.

Lotus Technology has additional risks that could hurt its investors. For one, as a Chinese company, there is a risk that tensions with the United States will continue. Also, the firm could face delisting if the SEC cannot verify its audits for two years.

The biggest risk is whether luxury vehicle buyers are willing to buy EVs instead of the traditional luxury vehicles from the likes of Ferrari, McLaren, and Porsche.

Further, there is the issue of funding. It is unclear whether Geely will continue funding the company in the long term. Recently, the company said that it would slow its investments in Polestar.

LOT stock price forecast

The hourly chart shows that the Lotus share price peaked at $16.46 shortly after going public in February. It then retreated to a low of $5.47 in March. The stock was hovering at $6.76 on Friday. It has formed a small triangle pattern and moved to the 50-period weighted moving average.

It is too early to predict the next Lotus Technology stock price action. However, there are chances that it will have a bearish breakout as it provides more colour on its losses. If this happens, it could crash to $5.47, 20% below the current level.

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