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Forbes forecasts Rivian pull in more cash as people see their profitability drop

Rivian reinvigorates the EV market after major investors turn away from money losers

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The risk-takers who drove Rivian Automotive Inc.’s stock to dizzying heights last year now shun companies for which profitability is still years away, so not even a landmark US climate bill designed to encourage sales of electric cars has been able to revive investor interest.

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Rivian’s misfortune stands out in a year that has been difficult for growth stocks of all stripes, but especially for EV companies trying to carve out a niche in a still-emerging industry while competing with century-old automakers. The electric-truck manufacturer’s stock has performed the worst this year among the major EV startups in the United States, falling by a whopping 64%.

Rivian, which counts Amazon.com, Inc. as one of its largest shareholders, is suffering after its record-breaking $13.7 billion IPO last November.

When the Federal Reserve began raising interest rates and investors fled riskier stocks, the company’s listing valuation of $153.3 billion (more than 35 times estimated sales compared to 5.1 times for the Russell 1000 Growth Index) was bound to suffer more than rivals.

According to Wiley Angell, chief investment officer at Ziegler Capital Management, “more speculative investments — like EVs — may struggle as the Fed continues to withdraw liquidity from the market.” Sales may be marginally boosted by the current administration’s interest in electric vehicles, but Rivian is still projected to have negative earnings over the next five years.

After Thursday’s market close, Rivian will announce its quarterly results for the fourth time since its IPO. According to Bloomberg information, the company’s stock price has dropped following two of the three prior reports.

Although it has rebounded 82% since hitting bottom in May, the stock closed on Wednesday at $37.40, which is significantly less than its initial public offering (IPO) price of $78.

There are a number of threats to the group: electric vehicles are still in their infancy, are more expensive than gas-powered vehicles, and the price of battery raw materials is expected to rise until further advances in technology bring their price down. Even more challenging for new businesses is the ongoing automotive industry’s supply-chain crisis.

In a statement released last week, Lucid said it would cut its 2022 production goal in half due to “extraordinary supply chain and logistics challenges.” The stock of the company subsequently dropped by 12% over the course of two days. The stock price of Workhorse Group Inc. fell by 24 percent on Tuesday after the company announced a reduction in its 2022 delivery guidance.

In the meantime, Rivian’s production outlook for the entire year was reaffirmed in early July, leading to a rise in the stock price. Therefore, Redburn analyst Charles Coldicott opined that the stock price may not be able to rise significantly higher despite the company’s superiority in coping with supply problems.

He said that it was likely that Rivian would meet its annual goal, and that the company was focusing on ramping up production.

And then there’s the fact that investors have become fearful of taking on additional risk in the stock market as the prospect of a recession has diminished optimism.

Because “there is no longer a backdrop where equity markets are willing to write loss-making companies a blank check,” as Coldicott put it, “the market is clearly less forgiving of problems that delay the point at which these businesses become self-funding.”

It highlights Rivian’s major cash pile, the company’s main competitive edge over Lucid. At the end of the first quarter, the company had $16.4 billion in cash and equivalents, while Lucid had $5.4 billion.

“Cash burn will be key for Rivian’s quarter,” said Ivana Delevska, chief investment officer at SPEAR Invest. “They have a good product, but underwriting an investment was much simpler when the stock was in the low $20s, trading close to the cash on the balance sheet, than it is here in the mid $30s,” the analyst said.

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Slumping EV stocks are led by Rivian as investors avoid money losers. autoblog.com on August 11, 2022 at 9:08:00 a.d. If you wish to use feeds, please review our terms.