Investors have lost faith in Amazon.com Inc.-backed Rivian Automotive Inc.’s capacity to compete in the electric vehicle market, as evidenced by the stock’s persistent decline.
After a 93% stock wipeout, the market capitalization of a company that was worth over $150 billion just days after its blockbuster public trading debut in late 2021 is now less than $12 billion.
At a time when established automakers are making a concerted effort to break into the electric vehicle (EV) industry and Tesla Inc.’s price reduction are putting pressure on competitors to lower their own prices, Rivian is in the same position as other EV startups: without the cost savings that come with large-scale production. As the Federal Reserve continues to tighten monetary policy, it has grown more challenging to raise financing to support that larger scale.
Ivana Delevska, chief investment officer at SPEAR Invest, said, “The market right now is not willing to assign any value to Rivian’s growth prospects.” “still needs to invest several billion dollars to prove out its business model,” she said, referring to the company’s $11.6 billion in cash and equivalents and $1.6 billion in debt.
Deteriorating Profit Margins Expected
Analysts on Wall Street are beginning to abandon their positive forecasts. Because of deteriorating profit margin expectations, RBC Capital Markets analyst Tom Narayan downgraded the stock last month to sector perform from outperform. That was after Alexander Potter, also of Piper Sandler, cut his price target on April 14. According to Bloomberg statistics, thirteen analysts recommend buying shares of Rivian while seven recommend holding and two recommend selling.
Since the end of December, revenue forecasts for the first quarter have dropped by more than 25%, according to statistics collated by Bloomberg. When the company reports on May 9, analysts expect sales of roughly $650 million, up from $95 million at the same time a year ago.
With rising interest rates discouraging people from taking out auto loans, it’s a bad time to be selling pricey electric pickup trucks or SUVs like the ones Rivian manufactures. Currently, the base price of the company’s R1T pickup truck is $73,000, while the base price of Ford’s electric version of the immensely popular F-150 model is around $60,000.
According to Brian Mulberry, client portfolio manager at Zacks Investment Management, “Investors appear to recognize that this is likely a niche brand for now until they can achieve more production and get better margins on sales.”
In order to continue expanding after 2025, Piper Sandler’s partner Potter predicts that Rivian will need to raise more than $4 billion.
He opined that “Rivian shouldn’t abandon its strategy,” but that “Rivian will keep trading at book value” unless and until funding is handled.
Company stock was trading 1.9 percent lower at $12.58 as of 9:32 AM on Monday in New York.
