The fundamental strengths of a company are always reflected in its stock price. Rivian Automotive Inc.’s share price wipeout reflects a different, uglier truth about the company. The company, despite Amazon Inc’s support, lacks the ability to compete in the electric automotive market.
Rivian had a blockbuster public trading debut as it achieved a market capitalization of 150 billion dollars. The current valuation of the company is a mere $12 billion after investors lost confidence.
The company was targeting the electric automotive sector, a sector that is already flooded with competitors. Tesla continues to dominate it while legacy car companies try to catch up with Tesla’s pricing strategies.
In a market so competitive, Rivian lacks the basic support of savings that come with large-scale production setups. The shareholders soon began to question Rivian’s competitiveness.
According to analysts, Rivian needs more investment to prove its business model. However, with interest rates rising, it is unlikely that Rivian will find an investor. This means that prospects for returns seem dim. The company has already underperformed and its revenue projections have fallen by 25% since December last year.
Analysts estimate revenue of $650 million in sales for Rivian, up from $95 million in the same period one year ago. Pricing is a challenge for Rivian’s products as consumers are reluctant to take on loans at higher interest rates.
Rivian’s pickup truck models start their pricing at $73,000 while its rival Ford F-150 starts at $60,000. This kind of pricing difference makes competition untenable.
Brian Mulberry, client portfolio manager at Zacks Investment Management summarized the investors' view of Rivian as a company.
“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,”
Analysts estimate the Rivian will have to raise $4 billion in funding to grow beyond 2025. Analysts feel that until the funding concerns are addressed the stock will continue to trade at book value. The stock price for Rivian was $12.58 by 9:32 a.m. in New York on 1st May.
