In recent times, the world’s deepest pockets and the mere ambition to sell electric cars were sufficient to inspire confidence in the stocks of upstarts Rivian Automotive Inc. and Lucid Group Inc. But now, investors seem to be losing faith in these shares.
Rivian, a manufacturer of electric pickups, SUVs, and delivery vans, with Amazon.com Inc. as its top shareholder, announced that its production will remain at last year’s levels. On the other hand, Lucid, majority-owned by Saudi Arabia’s sovereign wealth fund, projected a slight increase in output over 2023. Both of these forecasts fell significantly short of analysts’ expectations, causing a ripple of concern in the market.
Investor Gloom and Market Impact
Investors have been feeling the gloom since October when Tesla Inc. warned of a decline in interest in EVs. Although Tesla’s shares have lost around 20% since then, massively underperforming the broader market, the impact on smaller rivals like Rivian and Lucid has been disastrous.
David Mazza, Chief Strategy Officer at Roundhill Investments, explains, “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.”
Rivian’s shares have plummeted by about 44% since Tesla’s October warning and closed Friday at a record low. Lucid, on the other hand, has dropped some 33% in the same period.
Backing of Wealthy Investors
However, the presence of wealthy backers such as Amazon, with a 17% stake in Rivian, and Saudi Arabia’s Public Investment Fund, holding roughly 60% of Lucid, has cushioned the stocks from looking far worse.
Mazza added, “The presence of these names is a comfort to investors and a cushion to the price. If these stocks were just relying on the EV hype, then they would be down much worse.”
Amazon clarified that the recent results from Rivian do not change anything about their “existing investment, collaboration, or order size and timing.” Rivian has a deal with Amazon to sell it 100,000 electric delivery vans by 2030.
Ringing the ‘Alarm Bells’
The main concern for investors is the struggle these unprofitable companies will face to sell cars at a time when even industry-leader Tesla is cutting prices to boost demand.
David Wagner, portfolio manager at Aptus Capital Advisors, warns, “For these car manufacturers, investors want to see demand. In the meantime, I think skeptics will be scrutinizing the cash balance and ringing alarm bells.”
Both Rivian and Lucid are now worth a fraction of the prices they fetched at their public-market debuts in 2021. Rivian’s market value is around $9.6 billion, and Lucid’s is about $6.9 billion. This is a stark contrast from their $153 billion and $91 billion valuation peaks, respectively, in 2021.
As if this wasn’t enough, Wall Street analysts are losing confidence as well. Analysts’ average 12-month price targets for Rivian and Lucid fell nearly 20% just this week. Meanwhile, according to Bloomberg, the outlook for EVs broadly just keeps getting worse, with global sales of EVs estimated to grow 20% this year, a marked cooling from the 33% jump seen in 2023.
As Adam Jonas, a Morgan Stanley analyst, aptly puts it, “Trying to be the ‘next Tesla’ is turning out to be an expensive strategy.” It seems that the road to success in the EV market is proving to be bumpier than expected for these ambitious startups.
