Why Rivian Automotive Inventory Misplaced Practically Half Its Worth in December

What occurred

Electrical automobile producer Rivian Automotive (RIVN -1.32%) is scaling again its ambitions as we enter what could possibly be a troublesome patch for automakers. Traders are apparently getting nervous: They despatched Rivian shares down by 42.5% in December, in response to knowledge supplied by S&P World Market Intelligence.

So what

Rivian joined the general public markets in November 2021 to nice fanfare, with its share value surging by as a lot as 53% following its preliminary public providing and valuing the electrical automobile producer to a market cap of greater than $100 billion. The expectations baked right into a valuation like that, nevertheless, may be onerous to fulfill, and the corporate has since then confronted a number of challenges that tempered buyers’ enthusiasm for the inventory.

Manufacturing automobiles at scale is troublesome and dear. Rivian final yr raised the costs on its well-received electrical pickup, and in September introduced it will work with Mercedes-Benz Group to collectively manufacture electrical supply vans as a substitute of going it alone.

Then in December, Rivian scaled again its expectations additional: It  put the partnership with Mercedes on maintain to preserve capital to be used in different areas of its enterprise. The announcement got here at a time when a spread of auto retailers, together with CarMax, had been warning that customers are more and more dealing with affordability challenges that would restrict the gross sales of high-end automobiles.

In a weak marketplace for progress shares normally, Rivian’s company-specific information despatched buyers racing for the sidelines.

Now what

Within the wake of the December decline, Rivian shares are actually 83% beneath the worth the place they debuted simply over a yr in the past. Traders who had been as soon as intrigued by the potential of the corporate are actually very a lot in wait-and-see mode, and it could possibly be some time earlier than a catalyst emerges to get the inventory charging greater once more.

Rivian has a wholesome order e-book, and there is clear demand for its supply automobiles from Amazon (a Rivian investor) and others. The corporate is ramping up manufacturing and dealing by way of a number of the provide chain points that held again gross sales in 2022. However we face an unsure financial local weather, and a number of automakers are more and more including electrical automobiles to their choices in what’s turning into a crowded market.

It is means too quickly to name Rivian a failure, however after a roller-coaster 2022, it seems many buyers are content material to attend to see what the longer term brings earlier than shopping for the shares, even at their present low costs.

John Mackey, former CEO of Complete Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. Lou Whiteman has positions in Amazon.com. The Motley Idiot has positions in and recommends Amazon.com and CarMax. The Motley Idiot has a disclosure coverage.

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