Companies that thrived on political subsidies may also suffer their collapse. Behold the electric vehicle manufacturer Rivian‘S
High flying stocks are falling to earth.
Shares of Rivian fell another 20.88% Monday to $22.78 after the lock-in period for early investors expired. The EV startup went public in November with a valuation of $66.5 billion and stock at $78. Its stock price quickly surged to $172 amid investor excitement over the free credit and expectations that Congress would soften subsidies for electric vehicles.
At one point Rivian had a market value of $153 billion — more than any other automaker in the world besides Tesla and Toyota — despite only delivering 156 vehicles before its IPO. But building a new automaker from scratch isn’t easy. Tesla soon missed its production forecast and only produced about 20,000 units a year five years after the release of the first model.
Shares of Rivian began to slide as it ran into manufacturing problems, and investor hopes that Democrats would overcome Build Back Better had faded. In March, Rivian cut its production guidance for this year in half to 25,000 vehicles and raised the price of pickups by $12,000 to $79,500, citing increased costs in the supply chain.
Prices for lithium and nickel for batteries have soared as government mandates have fueled a boom in electric vehicle production. Traditional automakers like GM and Ford are electrifying their pickups, which they hope will be more popular than electric sedans. But larger EVs require larger batteries, which require more lithium and nickel.
Higher costs may limit consumer demand. Such risks have not bothered investors as credit is essentially free and more generous subsidies are in the works. But the Federal Reserve’s monetary tightening is causing investors to reassess valuations. Rivian and other electric vehicle startups were among the casualties.
Many great companies survive in tough markets and Rivian is able to overcome this and thrive. But its shares rise and fall is a warning of too much money chasing too little profit too soon.
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Appears in print May 10, 2022.
https://www.wsj.com/articles/a-high-speed-electric-vehicle-crash-rivian-stock-subsidies-11652130533 A High-Speed Electric Vehicle Crash