Why Rivian, Lucid and Nio are sinking today

What happened

The market has been gathering momentum with a risk-off mindset over the past few trading days. Electric vehicle (EV) startups are near the top of the risk spectrum, and several stocks are plummeting as a result. rivian automotive (RIVN -4.02%) Y lucid group (LCD -8.30%) are two domestic producers down 5.9% and 9%, respectively, as of 10:45 a.m. m. ET based in China child (LITTLE BOY -9.51%) It was also deep in the red, down 10.8%.

And that

While the macro environment is the driving force behind today’s declines, it only highlights the underlying risks associated with investing in these names. Rivian and Lucid have only been in commercial production for about six months, and both have faced roadblocks due to supply chain challenges and rising raw material costs. While Nio doesn’t qualify as a startup with more than 200,000 cumulative deliveries, it has also faced those challenges and more, due to the recent COVID-19 lockdowns in major Chinese cities.

Now what

The good news for these companies and investors is that they are all in good financial shape to weather the current economic storm. As of March 31, 2022, each had a significant amount of cash on its balance sheet.

  • Rivian: $17 billion
  • Lucid: $5.4 billion
  • Child: $8.4 billion

But each also has plans to invest those funds, and neither is yet cash flow positive. Last week, Rivian CEO RJ Scaringe sent his first letter to shareholders. He touted the opportunities that exist from the transition in transportation to electric power. Specifically, Rivian has a consumer side with its R1 flatbed trucks, as well as a commercial business. Its commercial electric delivery van (EDV) business has an order for 100,000 vehicles from early investors Amazon. Scaringe noted that his stack of cash will help him get through his plans to build a second factory in Georgia and launch his second consumer vehicle platform in 2025.

Lucid also has plans for a second factory, but is expanding internationally into Saudi Arabia. For its part, Nio has already expanded out of China and into Europe, and plans to grow that business in several more European countries this year.

But Nio has also been struggling to maintain its production as lockdowns in China have hit the supply chain as well as consumers’ ability to buy vehicles in recent weeks. However, the short-term challenges should eventually subside, allowing it to return to normal operations.

The overall investment landscape is also changing with inflation and recession risks rising around the world. Unprofitable and riskier companies like Rivian, Lucid and Nio are increasingly less favored in this environment. That is clearly on display today as market fears mount and these EV names fall. There may also be more drawbacks, as these risks continue.

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