Ahead of Rivian Automotive’s (NASDAQ:RIVN) latest quarterly earnings release late last month, I expected investors would use any negative news as an excuse to bail on RIVN stock. This prediction proved accurate.
Although there was good and bad with the early-stage electric vehicle maker’s quarterly numbers, key elements of its updates to guidance underwhelmed. As a result, shares fell by more than 18% following the earnings release.
Just days after experiencing this big sell-off, after an attempted recovery stalled out, RIVN experienced yet another double-digit drop. This was because of other news that bodes badly for future returns. After falling by nearly 23% since earnings, shares may find some short-term support at current prices (around $15 per share).
However, don’t assume it’s all uphill from here for the stock. Here’s why.
Why RIVN Stock has Tanked Twice in Two Weeks
On Feb. 28, Rivian Automotive released its fourth quarter financial results as well as its updates to guidance/outlook. The quarterly numbers themselves were mixed overall.
Revenue of $663 million fell slightly short of analyst estimates ($800 million). Earnings (or more accurately losses) for the quarter came in narrower than expected. For the quarter, the company reported losses of $1.87 per share, versus consensus estimates of $2 per share in losses.
Still, investors found one nugget of negative news, and used it as a justification for the first of two sharp RIVN stock pullbacks over the past two weeks.
In the company’s production outlook update, management guided for 50,000 vehicles to be produced during 2023. This came in moderately short of Wall Street’s forecast, which called for production of between 60,000 and 65,000 vehicles.
After this post-earnings pullback, shares sold off yet again earlier this month. This was because of Rivian’s announced plans to raise $1.3 billion from the sale of “green bonds.” These bonds, which are convertible into RIVN shares, not only are dilutive to existing shareholders; they may be a signal of further dilutive capital raises ahead.
What May Drive the Next Sell-Off
Some may believe RIVN stock has become oversold following these two sell-offs. After all, Rivian may fall short in terms of production guidance, but at least its production problems aren’t as bad as those with another high-profile EV upstart, Lucid Group (NASDAQ:LCID), right?
Regarding the forthcoming dilution, based on Rivian’s current market cap (around $14 billion), this represents dilution of under 10%. Yet while Rivian may appear better-positioned than many of its peers, don’t assume this will remain the case.
In fact, this EV contender may already be an “EV also ran,” and the market just doesn’t fully know it yet. However, investors could take notice, causing another big sell-off for RIVN. Production and delivery numbers continue to disappoint. It’s concerning that Rivian is no longer reporting reservation numbers.
This may suggest that the company will be soon experiencing a Lucid-like drop in demand. Cash burn is already expected to stay high, but if losses come higher-than-expected in the coming quarters, the company may need to conduct further dilutive capital raises. This could also further dampen sentiment for shares.
Despite RIVN losing nearly a quarter of its value in a matter of weeks, unrealistic expectations continue to be baked into its stock price. The market may continue to walk these expectations back as the company’s chances of success or comeback, grow dimmer by the day.
More signs now point to Rivian having more in common with Lucid and the other struggling EV names, and less in common with established players in the space such as Tesla (NASDAQ:TSLA).
Investors haven’t yet fully come to this conclusion, but subsequent news/developments with the company could bring them there.
Before sentiment shifts fully to the bearish side, potentially sending shares to new lows, or maybe even to single-digit price levels, there’s only one move to make with RIVN stock: sell/avoid.
RIVN stock earns an F rating in Portfolio Grader.
On the date of publication, Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.