Rivian stock (NYSE: RIVN) hit a new all-time low of $15.28 in yesterday’s price action before closing 4.3% lower at $15.79. While analysts had the tendency to label almost any EV (electric vehicle) startup as the “next Tesla” or “Tesla killer” almost all the startup EV companies are struggling.
As for Rivian, it raised $12 billion in its blockbuster 2021 IPO which was the biggest listing since Facebook. Despite concerns over the valuation, Rivian raised the IPO price to $78. The company’s listing came at a time when there was euphoria toward EV names and Rivian went on to hit an all-time high of $172.01.
Rivian’s market cap was $153 billion at its peak which was in excess of Volkswagen’s then valuation. Even Lucid Motors’ market cap rose as high as $91 billion at the peak.
While valuations of startup EV companies were hitting through the roof and surpassed that of legacy automakers which not only produced many more cars but churn out billions of dollars in profits, EV bulls pointed out that Tesla is a better comp for EV companies.
The Elon Musk-run company’s market cap surpassed $1.2 trillion at the peak which meant that it was valued more than the combined market caps of legacy automakers. No other automaker in history has crossed a market cap of $1 trillion.
Riding the Tesla wave, Musk’s net worth also surpassed $300 billion as he become the richest person ever in non-inflation-adjusted terms. However, things turned upside down for EV companies like Tesla and Rivian in 2022.
EV Stocks Crashed in 2022
EV stocks fell across the board in 2022 and many including Arrival, Lordstown Motors, Lucid Motors, Rivian, and Xpeng Motors fell to their all-time lows. Tesla too lost 65% and had its worst-ever year. In absolute terms, the company lost $675 billion in market cap last year.
The fall in EV stocks like Rivian in 2022 might look intriguing as global EV sales actually rose sharply last year even as the total automotive sales contracted. Global EV sales rose 68% YoY to 7.8 million units in 2022 and accounted for almost 10% of total car sales last year—a key milestone.
China has taken the lead in EV sales and every fifth car sold in the world’s largest automotive market was electric last year. It has been promoting EV adoption in the country as it tries to wean away the economy’s reliance on oil imports. China is the world’s largest automotive market as well as oil importer.
The country sees electric cars as a key pillar of its “Make in China 2025” strategy. China also bailed out home-grown NIO in 2020 when it was staring at bankruptcy. NIO stock has since recovered and most brokerages are positive about the stock. There is a guide on buying NIO stock.
Rivian Stock Continues to Fall in 2023
While Tesla has recovered after falling to a new multi-month low on the first trading day of 2023, Rivian has continued to plummet in 2023 and is already down 14.3% for the year. Notably, Rivian missed its 2022 production guidance of 25,000 cars and could produce only 24,337 cars in the year.
Incidentally, even the guidance to produce 25,000 cars was also half of Rivian’s original guidance. Lucid Motors also lowered its guidance twice last year but eventually managed to beat the rather low bar it had set.
Why is Rivian Stock Falling?
Macro challenges seem to be weighing down Rivian stock. Loss-making companies have fallen out of favor with investors. Talking of Rivian, it lost around $1.7 billion each in the second and third quarters of 2023.
Rivian does have a strong balance sheet and with a cash pile of $13.3 billion at the end of September, it is among the most well-funded EV startups. The company estimates that the cash is enough to fund its operations until the end of 2025.
Startup EV companies have been perennially burning cash and are struggling with execution. The sell-off in Tesla stock, to which markets benchmarked other EV plays, has also crashed, adding to the pressure on startup EV companies’ valuations.
Tesla has lowered car prices across its models including the best-selling Model 3 and Model Y. The price cuts led to a sell-off in other EV names including Rivian as markets now fear a price war.
Tesla’s Price Cuts Raise Price War Worries
Many EV companies especially Lucid Motors fancied themselves as the “next Tesla.” Lucid Motors compared its business plans to that of Tesla during the SPAC merger and gave an impression that in a decade it would reach where Tesla was in 2021.
So far, none of the “Tesla-killers” and “next Tesla” have failed to live upto the hype. Analysts are also apprehensive on EV stocks in the short term and Deutsche Bank lowered its target price on both Rivian and Tesla.
Commenting on Rivian, Deutsche Bank analysts said, “the pull-back in multiple is justified given the delayed launch of R2, and previous decision to push off expansion in Normal could limit the volume growth through mid-decade until the second facility can ramp in 2026+ and demonstrate meaningful volume growth.”
The brokerage however maintained its buy rating on Rivian. There is a guide on buying Rivian stock.
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