The rapid decline of Rivian Automotive Inc.’s stock price has revealed a sobering truth for investors. The market has little faith in the ability of the Amazon-backed company to compete in the crowded electric-vehicle (EV) market. Rivian’s market capitalization has plummeted from over $150 billion in late 2021 to less than $12 billion, reflecting almost no value beyond the company’s cash reserves.
Like other EV startups, Rivian lacks the cost-saving advantages that come with large-scale production. At the same time, legacy car companies and Tesla’s price cuts have made it difficult for new players to compete. Raising capital to fund growth is also becoming increasingly difficult, as the Federal Reserve tightens 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. Despite having $11.6 billion in cash and equivalents and $1.6 billion in debt, Rivian needs to invest several billion dollars more to prove its business model.
Wall Street analysts are also beginning to lose confidence in the company. Several have downgraded their ratings, citing dimming profit prospects. Revenue projections for the first quarter have fallen over 25% since the end of December, and analysts now expect sales of around $650 million when Rivian reports on May 9.
Selling expensive EV pickup trucks or sport utility vehicles in today’s market is challenging, especially with interest rates on auto loans soaring. Rivian’s R1T pickup truck starts at $73,000, while Ford’s electric version of its F-150 model 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 Alexander 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.
As of Monday morning, Rivian’s shares were trading down 1.9% at $12.58. While the company shouldn’t abandon its strategy, it will need to raise significant capital to prove its business model and compete in the EV market.
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