In the not-so-distant past, the mere announcement of plans to manufacture electric vehicles (EVs) and the support of deep-pocketed investors were sufficient to fuel optimism and confidence in the stocks of emerging players like Rivian Automotive Inc. and Lucid Group Inc. Fast forward to today, and investors seem to have lost faith, with shares taking a hit due to sobering revelations about the current state of the EV market.
Reality struck hard for these companies as they addressed the cooling demand for EVs. Rivian, a producer of electric pickups, SUVs, and delivery vans, announced that its production would remain stagnant at last year’s levels, coupled with plans for another round of workforce reduction. Lucid, majority-owned by Saudi Arabia’s sovereign wealth fund, projected only a marginal increase in output for 2023, falling significantly short of analysts’ expectations.
The downturn in sentiment has been apparent since October, when Tesla Inc. first sounded the alarm about waning interest in EVs. While Tesla’s shares also suffered, smaller competitors like Rivian and Lucid faced a more severe downturn, with both companies experiencing substantial drops in stock value.
David Mazza, Chief Strategy Officer at Roundhill Investments, highlighted the challenges for companies in disruptive industries: “If you are a hyper-growth company in what is seen as a disruptive industry and you are not growing your topline, you are in trouble.” Despite having anchor investors like Amazon and the Saudi wealth fund, Mazza emphasized that slower growth and thinner margins were inevitable compared to initial expectations.
Rivian, based in Irvine, California, has seen its shares plummet by approximately 44% since Tesla’s warning, closing at a record low on Feb. 23. Lucid, headquartered in Newark, California, faced a similar fate, with a 33% drop in the same period. However, Mazza suggested that the presence of wealthy backers has provided some cushioning for these stocks.
While Amazon clarified that Rivian’s recent results wouldn’t impact its existing investment and collaboration, concerns linger about these cash-burning companies struggling to sell cars amid an increasingly competitive market. Tesla’s price cuts to boost demand, supported by its profitability and large-scale production, pose a significant challenge for Rivian and Lucid, lacking those advantages.
David Wagner, Portfolio Manager at Aptus Capital Advisors, expressed skepticism about Rivian’s prospects, stating that the company would take several quarters to recover from its production stoppage. The key concerns revolve around cash balances and the lack of multiple expansion and growth.
Both Rivian and Lucid have seen their market values plummet from their 2021 peaks. Rivian is currently valued at around $9.6 billion, and Lucid at about $6.9 billion, a stark contrast to their respective valuation peaks of $153 billion and $91 billion in 2021.
Wall Street analysts are also losing confidence, with average 12-month price targets for Rivian and Lucid dropping nearly 20% in a week. The broader outlook for the EV market doesn’t provide much solace, with global sales projected to grow at a slower pace in 2024 compared to the previous year.
Morgan Stanley analyst Adam Jonas pointed out the challenges faced by EV startups, noting that trying to be the ‘next Tesla’ is proving to be an expensive strategy. As EV startups undergo restructuring, finding a sponsor may be crucial for their survival in this evolving landscape.
Source: Transport Topics
Photo: Rivian Automotive
