Two Overlooked Penny Stocks in the EV Sector: Hidden Opportunity or Risky Bet?

The electric vehicle sector has witnessed a dramatic transformation over the past year. What once seemed like a guaranteed growth story has become a minefield for investors. The euphoria surrounding EV startups has evaporated, replaced by bankruptcy filings, all-time lows, and widespread market skepticism. Yet within this wreckage, certain penny stocks in the EV space are catching the attention of contrarian investors willing to bet on recovery.

When Market Darlings Become Penny Stocks

The transition has been jarring. Companies that commanded $90 billion valuations at their peaks are now trading for pocket change. This isn’t unique to any single player — it’s an industry-wide phenomenon affecting startups that went public via SPAC mergers. Rising competition, price wars, and tight financial conditions have systematized the carnage.

The SEC’s definition is simple: penny stocks trade below $5. By this metric, nearly every SPAC-backed EV startup has crashed through that threshold. Some, like Lordstown Motors, didn’t survive the fall at all. Others, including two particular candidates, are showing tentative signs of life despite their diminished market caps.

Lucid Motors: From Tesla-Killer Narrative to Penny Stock Reality

Consider the arc of Lucid Motors. When Peter Rawlinson’s company executed the largest SPAC merger in history back in 2021, analysts were convinced they were watching the birth of a Tesla competitor. At peak valuation, the market cap exceeded $90 billion. Today, Lucid trades below $5 — it hit an intraday low of $4.87 before marginally recovering past that psychological barrier — with a market cap hovering around $11.5 billion.

The collapse has been thorough. Market skepticism about demand for Lucid vehicles, combined with the broader EV sector retreat, has taken its toll. Yet the investment thesis hasn’t entirely deteriorated.

The company retains tangible assets that matter. MotorTrend’s selection of the Lucid Air as 2022’s Car of the Year validated its technical credibility: “The win affirms Lucid Air as the new EV benchmark, with the most advanced electric powertrain available today — technology wholly designed, developed, and manufactured in-house.” Aston Martin’s partnership to source electric motors and batteries from Lucid further underscores the legitimacy of its engineering claims.

On the balance sheet front, Lucid maintains $6.25 billion in total liquidity following two recent capital raises. While additional fundraising may eventually be necessary, the company faces no immediate liquidity crisis. More importantly, Saudi Arabia’s sovereign wealth fund has committed $3 billion to the venture and continues backing the project. The company’s newly opened Saudi manufacturing facility will begin producing its Gravity SUV next year — an event that could generate positive momentum for the stock in the near term.

These fundamentals suggest the stock has bottomed out, though further near-term weakness remains possible. For risk-tolerant investors, the risk-reward profile has shifted meaningfully.

Polestar: The Rare EV Startup That Already Ships Products

Polestar represents a different category entirely within penny stocks in the EV sector. Unlike its peers that went public with nothing but promises, Polestar was already delivering vehicles when it entered the market via SPAC in early 2023. The distinction proves crucial.

The company currently offers the Polestar 2 and Polestar 3 models, with Polestar 4 deliveries commencing in Q4. Through the first nine months of 2023, Polestar has delivered approximately 41,700 units and targets 60,000-70,000 deliveries for the full year, with gross margins expected to reach 4%. Profitability is projected for 2025.

Trading below $5 since March, Polestar currently carries a market cap of $5.6 billion and an enterprise value-to-sales multiple of 1.93x on next 12-month basis — valuations that appear reasonable for a company demonstrating actual revenue traction.

Concerns do exist. The balance sheet remains weak, and ongoing cash burn likely necessitates capital raises. However, Polestar enjoys a structural advantage absent from most pure-play EV startups: backing from Volvo (owned by Chinese automotive conglomerate Geely), which has extended loan facilities and maintains capacity to provide additional support if needed.

The Volatility Reality Check

Penny stocks demand respect for their inherent danger. Volatility is a defining characteristic, not an exception. Only investors genuinely comfortable with severe portfolio fluctuations should participate. The graveyard of failed EV companies serves as a permanent reminder that optimistic projections don’t guarantee outcomes.

That said, the current moment in the EV sector has created asymmetric risk-reward scenarios for two names specifically. Both Lucid Motors and Polestar possess demonstrable assets — products, partnerships, or backing — that distinguish them from pure-play speculation. Execution remains uncertain, and projections carry material execution risk. But for investors with appropriate risk tolerance and time horizons, the penny stock valuations in the EV sector have created genuine opportunity worth monitoring.