Investors flee tumbling EV upstarts once hailed as ‘next Tesla’

Investors flee tumbling EV upstarts once hailed as ‘next Tesla’

Shares of Rivian, Lucid well off their peaks

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There was a time when the backing of some of the world’s deepest pockets and the mere ambition to sell electric cars was enough to inspire confidence in the stocks of upstarts Rivian Automotive Inc. and Lucid Group Inc. Now, investors have all but thrown in the towel on the shares.

All it took was a fresh dose of reality from the two companies last week around cooling demand for EVs. Rivian, which makes electric pickups, SUVs and delivery vans and counts Amazon.com Inc. as its top shareholder, said its production will stay flat at last year’s levels. It also announced plans to shrink its workforce again. Lucid, majority owned by Saudi Arabia’s sovereign wealth fund, projected only a slight increase in output over 2023. Both forecasts fell far short of analysts’ expectations.

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For investors, the sense of gloom has been building since October, when Tesla Inc. warned of sagging interest in EVs. Though shares of the EV giant have fared poorly since then, losing around 20 per cent and massively underperforming the broader market, the impact on smaller rivals such as Rivian and Lucid has been nothing short of disastrous.

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“If you are a hyper-growth company in what is seen as a disruptive industry and you are not growing your top line, you are in trouble,” David Mazza, chief strategy officer at Roundhill Investments, said. “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 margins thinner than what was once expected.”

Shares of Irvine, Calif.-based Rivian are down by about 44 per cent since Tesla’s October warning — the first in a series of grim outlooks from global EV-makers and suppliers — and closed Feb. 23 at a record low. Newark, Calif.-based Lucid has dropped some 33 per cent in the same period, and isn’t far above its own nadir.

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Rivian, Lucid stock performance chart

Still, had it not been for their wealthy backers — Amazon has a 17 per cent stake in Rivian, and Saudi Arabia’s Public Investment Fund holds roughly 60 per cent of Lucid, data compiled by Bloomberg shows — the stocks could be looking far uglier.

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“The presence of these names is a comfort to investors and a cushion to the price,” Mazza said. “If these stocks were just relying on the EV hype, then they will be down much worse.”

Amazon in an emailed statement said the recent results from Rivian don’t change anything about the e-commerce company’s “existing investment, collaboration, or order size and timing.” Rivian has a deal with Amazon to sell it 100,000 electric delivery vans by 2030.

Saudi Arabia’s PIF didn’t respond to an email seeking comment outside of the fund’s regular business hours on Friday.

‘Alarm bells’

Overall, the biggest concern is that these cash-burning, unprofitable companies will struggle to sell cars at a time when even industry-leader Tesla — by far the biggest seller in the United States — is cutting prices to boost demand. And while Tesla’s profits and large-scale production allow it to compete by lowering prices, Rivian and Lucid have neither of those advantages.

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“For these car manufacturers, investors want to see demand,” David Wagner, portfolio manager at Aptus Capital Advisors LLC, said.

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Rivian’s latest results suggest it will take several quarters to emerge from its production stoppage with a leaner cost structure and a redesigned platform, he said.

“In the meantime, I think skeptics will be scrutinizing the cash balance and ringing alarm bells,” Wagner said. “So, if there is no multiple expansion and no growth, what else is the stock supposed to do?”

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 US$9.6 billion, and Lucid’s is about US$6.9 billion. That’s a long way down from their US$153 billion and US$91 billion valuation peaks, respectively, in 2021.

Wall Street analysts are losing confidence as well. Analysts’ average 12-month price targets for Rivian and Lucid fell nearly 20 per cent last week. Meanwhile, the outlook for EVs broadly just keeps getting worse.

Global sales of EVs are estimated to grow 20 per cent this year, to about 16.7 million units, according to BloombergNEF’s most recent analysis. That’s a marked cooling from the 33 per cent jump in 2023.

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“Trying to be the ‘next Tesla’ is turning out to be an expensive strategy,” Morgan Stanley analyst Adam Jonas said in a note on Feb. 23. “As EV startups turn into restructuring stories, whoever finds a sponsor has the best chance.”

Bloomberg.com

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