MAY 1, 2023
The relentless erosion in Rivian Automotive Inc.’s share price is revealing an ugly truth: Investors have little faith left in the ability of the Amazon.com Inc.-backed company to compete in a crowded electric-vehicle market.
A market capitalization that exceeded $150 billion days after a blockbuster public trading debut in late 2021 now stands at less than $12 billion after a 93% stock wipeout, reflecting almost no value beyond the company’s cash hoard.
Like other EV startups, Rivian lacks the advantages of the cost savings that come from large-scale production at a time when legacy car companies are aggressively pushing into the market and Tesla Inc.’s price cuts are pressuring rivals to follow suit. And raising capital to fund that bigger scale has become increasingly difficult as the Federal Reserve continues to tighten monetary policy.
“The market right now is not willing to assign any value to Rivian’s growth prospects,” said Ivana Delevska, chief investment officer at SPEAR Invest. With cash and equivalents of $11.6 billion and debt of $1.6 billion, the firm “still needs to invest several billion dollars to prove out its business model,” she said.
Wall Street analysts are starting to walk away from their bullish positions. Last month, RBC Capital Markets analyst Tom Narayan cut his rating to sector perform from outperform, citing dimming prospects for profit margins. That followed a similar downgrade from Piper Sandler’s Alexander Potter on April 14. Rivian still has 13 buy ratings, seven holds and two sells, according to data compiled by Bloomberg.
Revenue projections for the first quarter have fallen more than 25% since the end of December, according to data compiled by Bloomberg. Analysts are now anticipating sales of about $650 million when the company reports on May 9, an increase from $95 million in the same period a year ago.
All together, it’s a tough time to be selling expensive electric pickup trucks or sport utility vehicles like the ones that Rivian builds, particularly with soaring interest rates making auto loans less attractive. The company’s R1T pickup truck currently starts at $73,000, compared with Ford’s electric version of the hugely popular F-150 model that starts at around $60,000.
“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,” said Brian Mulberry, client portfolio manager at Zacks Investment Management.
Piper Sandler’s Potter estimates that Rivian will need to raise more than $4 billion to fund growth beyond 2025.
“Rivian shouldn’t abandon its strategy, but until funding is addressed, we think Rivian will keep trading at book value,” he said.
Shares of the company were trading down 1.9% at $12.58 by 9:32 a.m. in New York on Monday.