VWAPY - Rivian Stock Trap: Why 28% Rally Can't Hide Fundamental Flaws
2024-07-09 06:00:00 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Shares of Rivian Automotive (NASDAQ: RIVN ) are rallying hard after the electric vehicle startup received some good news. However, even a near 30% gain can’t cover-up the fundamental problems with Rivian stock.
Rivian stock has increased 28% since mid-June on news that German automotive giant Volkswagen (OTCMKTS: VWAPY ) is investing up to $5 billion in the electric vehicle maker.
Investors have responded strongly to news of the Volkswagen partnership and cash infusion, but the recent rally can’t paper over the fact that RIVN stock has been a poor performer since its November 2021 market debut. Even with the recent 28% gain, Rivian stock is still down 30% this year.
Since holding its initial public offering, the stock is down nearly 90%. And there has yet to be any evidence that Rivian or its stock have turned a significant corner.
VW Partnership
Volkswagen’s investment started with an initial injection of $1 billion . The additional $4 billion will be allocated through 2026. The money is being used to create a joint venture with Rivian that will see the two automakers work on electrical architecture and software technology together.
Rivian stock initially soared as much as 50% on news of the Volkswagen investment.
That gain has since moderated with the shares now up less than 30%.
Volkswagen’s investment will support Rivian in production ramp-up of its smaller R2 electric SUV and a new mid-size electric vehicle. While the VW partnership is promising, Rivian has been here before.
Ford Motor Co. (NYSE: F ) previously had a large stake in Rivian before exiting the position entirely in 2023 and abandoning plans to codevelop electric vehicles with Rivian, whose finances have been deteriorating.
Losses and Cash Burn
Rivian’s stock has been sinking largely because of mounting losses at the unprofitable company. The electric vehicle maker reported a net loss of $1.45 billion in this year’s first quarter.
Management has responded to the red ink by cutting staff , retooling its Illinois manufacturing plant to increase efficiencies, and halting construction on a new multibillion-dollar factory in Georgia.
Those cost control measures may help, but Rivian doesn’t look to be out of the woods yet. Executives at the company are forecasting a full-year loss of $2.7 billion.
The company plans to manufacture a total of 57,000 electric trucks , SUVs, and delivery vans this year. But selling them might not be easy as consumers pivot to gas-electric hybrid vehicles. Rivian had $7.86 billion of cash on hand at the end of March this year.
Rivian continues to be one of the most heavily shorted stocks on Wall Street, with nearly 20% of the shares sold short. This means that traders are betting on a continued decline in the share price .
Sell Rivian Stock
There might come a time when Rivian stock is a good investment. But that time is not now. While the Volkswagen deal is encouraging, it doesn’t solve the big and immediate problems facing Rivian.
The company continues to struggle with widening losses, difficult production ramp-up, and sluggish sales. While the stock may have bounced higher in recent weeks, it’s coming off a very low bottom. And folks on Wall Street are still betting against it. This all means that Rivian stock is not a buy .
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
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