Mohit Oberoi
Rivian (NYSE: RIVN) stock is trading lower in US premarkets today after the company announced that it is putting on “pause” its deal with Mercedes-Benz to jointly produce electric vans in Europe.
The deal was announced in September. As part of the agreement, Rivian and Mercedes were to build a factory in Europe to produce electric vans. The two companies expected to start production at the plant in a “few years” but did not commit to a hard timeline.
While announcing the deal, the companies said, through the partnership “they will be able to leverage operations synergies and substantially increase cost efficiency to help make the vans more affordable for commercial customers driven by total cost of ownership.”
Meanwhile, with just over three months after the deal was announced, Rivian has paused the agreement. In his prepared remarks, Rivian CEO RJ Scaringe, said, “As we evaluate growth opportunities, we pursue the best risk-adjusted returns on our capital investments.”
He added, “At this point in time, we believe focusing on our consumer business, as well as our existing commercial business, represent the most attractive near-term opportunities to maximize value for Rivian.”
Rivian Stock Falls after It Pauses Electric Van deal with Mercedes Benz
Rivian stock had soared after the deal was announced. The stock is however trading lower in US premarkets today after announcing the pause on the Mercedes deal. Notably, EV companies have been looking to control their cash outflows as markets have become apprehensive of their massive losses and cash burn.
Rivian for instance lost $5 billion in the first three quarters of 2022. Its cash position is much better than most other EV startups though, thanks to its mega IPO. At the end of Q3 2022, RIVN held $13.8 billion in cash and cash equivalents. The company believes that the cash would be enough to fund its capex until the end of 2025.
Currently, RIVN produces cars at its Illinois plant and is setting up a second plant in Georgia. It currently sells the R1T pickup and R1S SUV.
Pickups and SUVs are the most lucrative models for carmakers and Ford apparently gets most of its profits from its best-selling F-150 pickup.
Truist recommends buying Rivian stock. Among others, it is bullish on the company’s exposure to the most profitable segments of the US automotive market.
Rivian Has Had a Change of Heart Previously Also
This is not the first time when Rivian is rethinking a deal. After its IPO last year, it ditched plans to make cars jointly with Ford. Also, earlier this year, it raised car prices, including for buyers who had already made a reservation.
However, amid the outcry from buyers, it announced that those who already had made a reservation would be able to buy the car at the original price only.
EV Companies Are Facing a Slowdown in Demand
During the Q3 2022 earnings call, Rivian said that it has 114,000 preorders for vehicles. In addition, Amazon, RIVN’s biggest stockholder, has placed an order for 100,000 electric delivery vans.
Notably, while Rivian’s orders increased in the quarter, Lucid Motors reported a fall in its orders while releasing its Q3 2022 earnings. Lucid Motors stock has been crashing amid reports of a slowdown in demand for its luxury Air cars.
Lucid Motors also announced a $1.5 billion stock sale program. Stock issuance at such depressed price levels would only increase the dilution for existing stockholders. The company would need the cash to bridge its cash burn.
While LCID had $3.85 billion cash and cash equivalents on its balance sheet at the end of September, it said that the cash would only fund its operations until the end of 2023.
Meanwhile, even Tesla is also offering a $3,750 credit to US buyers who take delivery of Model 3 or Model Y in December. Tesla stock has slumped amid reports that the company is looking to cut production in China. Meanwhile, amid the slump in Tesla stock, some of the erstwhile bears also find the stock attractive and recommend buying the dip in Tesla stock.
Rivian Motors to be Included in Nasdaq 100
Nasdaq 100 index would add Rivian stock in its annual restructuring. RIVN stock should ideally have been rising on the news. However, markets are apprehensive about the stock after it paused the deal with Mercedes.
During the Q3 2022 earnings call, Rivian said that it would delay the affordable R2 series of vehicles by one year to 2026. The company faces other troubles too and in October it recalled nearly all the vehicles that it had delivered until then.
The recalls were related to a faulty fastener which in the rare case scenario might lead to loss of steering control. Overall, like fellow start-up EV names, Rivian also needs to prove its mettle when it comes to execution. Almost all the EV startups have fared poorly on execution which is making markets turn cautious about them.
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This article was written for Business 2 Community by Mohit Oberoi.
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