While Tesla Inc.’s share price plunge has dominated the headlines over the past year, some smaller electric vehicle companies have fared worse, a sign that investors see few attractive alternatives in the sector.
The two biggest new electric vehicle makers, Rivian Automotive Inc. and Lucid Group Inc., have lost roughly 90% of their stock since their bull market highs, while Tesla is down 69%. Companies have struggled to ramp up vehicle production amid supply chain woes, while investors have increasingly run out of highly valued companies with no revenue.
“Tesla’s stock performance has certainly had an impact on the group, and that group’s own production issues have weighed on it,” said George Gianarikas, an analyst at Canaccord Genuity.
A Rivian representative declined to comment on the share price drop, while Lucid did not respond to a request for comment. Both stocks were lower in New York on Thursday, with Rivian down 3% and Lucid down 3.4%.
A staggering 740% rise in Tesla shares in 2020 has contributed to investor euphoria in the sector. All kinds of electric vehicles exploded – whether companies produced passenger cars, commercial vehicles, buses, or niche cars – and even the smallest names gained billions of dollars in value. Rivian and Lucid have been touted as potential “next Teslas” with values greater than those of century-old legacy automakers.
Lucid began trading in July 2021, and its stock was valued at $91 billion in November of that year. Rivian’s stock price peaked just days after its initial public offering in November 2021, valuing the company at $153 billion — more than Volkswagen AG, even though Rivian generated zero revenue at the time.
Rising interest rates and the fear of a recession in the past year curbed investors’ appetite for risk, causing them to flee unprofitable companies with high expected growth. Rivian is currently valued at $14.8 billion, while Lucid is valued at $13.7 billion. Even profitable Tesla plunged, casting a shadow over the rest of the industry.
Lucid built 7,180 Air Sedans in 2022, far from its forecast of 20,000 vehicles earlier in the year, as it grappled with supply chain glitches and logistical issues. Rivian also fell short of its annual production target of 25,000 cars.
Their sinking stock prices raise the cost of equity financing for automakers, which still invest heavily in their businesses.
Lucid, which has $3.3 billion in cash, said in November that it could raise up to $1.5 billion in capital in the coming months. For now, Rivian has no immediate need to tap capital markets — the company had about $13.2 billion in cash as of Sept. 30, which it says will last until 2025, though it has spent heavily to bring models to market and expand production. .
“People are worried that because of the pace of production, they won’t be able to make cars fast enough to get to the point where they don’t need to raise cash,” Canaccord’s Gianarikas said of Rivian.
Electric vehicle startups are looking increasingly risky at a time when investors are looking for safe-haven assets. Even then, car manufacturing was a capital-intensive, supply chain-focused business. In addition, the industry is highly sensitive to economic fluctuations and rising borrowing costs, which increase the cost of financing a car purchase. And as consumers tighten their wallets, electric vehicles, typically more expensive than gas-powered vehicles, are sure to be hit harder.
“Most of the losing tech stocks were hit hard last year by the Fed’s tightening policy and the commensurate impact on interest rates,” said Ivana Delevska, chief investment officer at SPEAR Invest. “But also EV fundamentals deteriorated in the fourth quarter as it became clear that there was too much supply coming to market.”
For Rivian, the sale was particularly ugly. It underperformed Tesla and Lucid and other electric vehicle makers such as Nikola Corp., Fisker Inc., Polestar Automotive Holding UK Plc, Workhorse Group Inc. and Lordstown Motors Corp.
The smaller EV maker’s disadvantages in these times became clearer last week when Tesla announced price cuts across its product range, which analysts say could be a bigger blow to its competitors, who will be forced to follow suit. Shares of Rivian and Lucid fell more than Tesla’s in trading on Friday after the cut was announced.
Shrinking share values and price cuts aren’t the only risks startups face. The pace of sales of electric vehicles is also expected to be slower than previously expected. According to BloombergNEF, although the adoption of electric cars will continue to grow in 2023, it will be at a more moderate pace than in the past two years.
“Even without a recession, the risk of ‘next Teslas’ increases,” said SPEAR’s Delevska. “Tesla is now scalable and profitable, and while we expect a significant decline in that profitability, we don’t believe Tesla will go away. Many of the recruits do.”