There was a time when backing from some of the world’s deepest pockets and the sheer ambition of selling electric cars were enough to inspire confidence in the shares of startups Rivian Automotive Inc. and Lucid Group Inc. Now investors are almost They have thrown in the towel. about actions.
All it took was a new dose of reality from the two companies this week around cooling demand for electric vehicles. Rivian, which makes electric pickup trucks, SUVs and delivery vans and counts Amazon.com Inc. as its largest shareholder, said its production will remain stable at last year’s levels. He also announced plans to reduce his workforce again. Lucid, majority owned by Saudi Arabia’s sovereign wealth fund, projected only a slight increase in production through 2023. Both forecasts were well below analysts’ expectations.
For investors, the sense of doom and gloom has been building since October, when Tesla Inc. warned of declining interest in electric vehicles. Although the electric vehicle giant’s stock has fared poorly since then, losing around 20% and massively underperforming the broader market, the impact on smaller rivals like Rivian and Lucid has been nothing short of disastrous. .
“If you’re a hypergrowth company in what’s considered a disruptive industry and you’re not growing revenue, you’re in trouble,” said David Mazza, chief strategy officer at Roundhill Investments. “Having an anchor investor like Amazon or the Saudis gives them a longer runway from a capital perspective, but their growth will still be slower and their margins tighter than expected.”
Read more: Elon Musk says Rivian needs to “massively cut costs” and its executives should “live in the factory” for struggling Tesla rival to survive
Shares of Irvine, California-based Rivian are down about 44% since Tesla’s warning in October (the first in a series of bleak outlooks from global electric vehicle manufacturers and suppliers) and closed on Friday at a historic low. Newark, California-based Lucid has fallen about 33% in the same period and is not far above its own low point.
Still, if it hadn’t been for its wealthy backers (Amazon has a 17% stake in Rivian, and the Saudi Arabian Public Investment Fund owns about 60% of Lucid, data compiled by Bloomberg show) the stock could look much uglier.
“The presence of these names is a comfort to investors and a cushion for the price,” Mazza said. “If these stocks depended solely on the EV hype, then they would fall much worse.”
Amazon in an emailed statement said Rivian’s recent results don’t change anything about the e-commerce company’s “existing investment, collaboration, or order size and timing.” Rivian has an agreement with Amazon to sell 100,000 electric delivery vans by 2030.
Saudi Arabia’s PIF did not respond to an email seeking comment outside the fund’s regular business hours on Friday.
‘Alarm bells’
Overall, the biggest concern is that these unprofitable, cash-burning companies will struggle to sell cars at a time when even industry leader Tesla, by far the biggest seller in the U.S. market, is cutting back. prices to boost demand. And while Tesla’s profits and large-scale production allow it to compete by lowering prices, Rivian and Lucid have none of those advantages.
“For these automakers, investors want to see demand,” said David Wagner, portfolio manager at Aptus Capital Advisors. Rivian’s latest results suggest it will take several quarters to emerge from its production shutdown with a tighter cost structure and a redesigned platform, he said.
“In the meantime, I think skeptics will look at the cash balance and sound alarm bells,” Wagner said. “So if there is no multiple expansion and no growth, what else are stocks supposed to do?”
Both Rivian and Lucid are now worth a fraction of the prices they commanded upon their public market debut in 2021. Rivian’s market value is around $9.6 billion and Lucid’s is around $6.9 billion. That’s well below their valuation peaks of $153 billion and $91 billion, respectively, in 2021.
Wall Street analysts are also losing confidence. Analysts’ average 12-month price targets for Rivian and Lucid fell nearly 20% this week alone. Meanwhile, the outlook for electric vehicles overall continues to worsen.
Global sales of electric vehicles are estimated to grow by 20% this year, to around 16.7 million units, according to the latest analysis from BloombergNEF. This is a marked cooling from the 33% increase seen in 2023.
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“Trying to be the ‘next Tesla’ is proving to be an expensive strategy,” Morgan Stanley analyst Adam Jonas wrote in a note on Friday. “As EV startups become turnaround stories, whoever finds a backer has a better chance.”
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