What happened
Rivian Automotive (RIVN -4.21%) stock ended 2021 with a market capitalization of nearly $94 billion. Within the next six months, Rivian's market cap was all but wiped out -- the electric vehicle (EV) stock plunged 75% in the first half of 2022, according to data provided by S&P Global Market Intelligence.
Although investors started dumping growth stocks from early 2022 in anticipation of rising interest rates and a slowdown in the economy, Rivian's free fall had deeper underlying concerns behind it. Unfortunately, the company isn't out of the woods yet.
So what
One of the biggest reasons Rivian's initial public offering (IPO) in November 2021 was so hyped was the EV maker's relationship with Amazon. Rivian had an order for 100,000 units of its electric delivery vans (EDVs) from the e-commerce giant, which it expected would bring in a significant portion of its revenue in the near term. So when Amazon struck a deal with Stellantis in January to purchase its battery EVs in 2023, investors in Rivian started to feel nervous.
Image source: Rivian Automotive.
In the days that followed, investors realized Rivian had more serious problems to deal with, topmost being supply and cost constraints that forced the company to hike the prices of its EVs even before it could start producing a meaningful number of vehicles. The move backfired, and after a backlash on social media, Rivian rolled back its decision to seek higher prices from customers who had already pre-booked its EVs. Rivian's reputation and its stock price, however, got knocked out.
The biggest blow, though, came in March when Rivian didn't just report an unexpectedly big loss of $2.5 billion for its fourth quarter against revenue of only $54 million, but also said its parts and supplies will be enough to produce just 25,000 vehicles in 2022 between all its EVs -- the flagship R1T pickup truck, R1S SUV, and EDVs. Analysts expected Rivian to produce 40,000 units, and the company itself said it could have produced nearly 50,000 units if not for supply chain hurdles.
By mid-March, Rivian stock was trading at less than half its value at the beginning of the year. Once Rivian's 180-day IPO lock-up period expired, one of its largest shareholders, Ford, wasted no time and dumped nearly 15 million shares in Rivian, bringing its stake down from about 12% to 9.7%. The stake sale further added to the pressure on Rivian stock as the markets feared Amazon, another one of Rivian's significant shareholders, could be next in line to sell its stake.
Now what
Some investors now believe Rivian is about to turn the corner. To be fair, Rivian has given some signals to suggest the same. For example, its deliveries in the second quarter almost quadrupled sequentially to 4,467 vehicles. The company is ramping up production, had an order backlog of more than 90,000 units between R1T and R1S as of June 6, and is confident of producing 25,000 units for the full year. Rivian also expects to start a second manufacturing plant and launch a mid-size SUV R2 by 2025 with the $17 billion cash it already had as of March 31.
However, that also means Rivian will have to produce at twice its Q2 rate in the remaining quarters of 2022 and still burn less cash. That's a tall task as cost and supply chain woes are far from over yet. Rivian is even reportedly planning to lay off hundreds of non-manufacturing workers, according to Bloomberg. With fears of a recession in the U.S. also looming large, investing in Rivian stock even after its steep fall this year seems like a risky bet.
