Rivian Breakout Is Expanding the Rift in EV Stocks

(Bloomberg) — Investors are showing a willingness to give beaten-down electric-vehicle stocks another chance, but they’re being more discerning this time when it comes to company performance.

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In a sector whose boom days of investor exuberance turned startups into billion dollar enterprises in a matter of weeks, a divide is emerging. Rivian Automotive Inc. and Lucid Group Inc. are beating the gains in the S&P 500 Index this year, while once-prominent and much-hyped EV startups like Faraday Future Intelligent Electric Inc., Workhorse Group Inc., Nikola Corp. and Canoo Inc. have seen double-digit declines.

“We are likely to see execution and profitability become the more dominant factors in EV production going forward,” Brian Mulberry, client portfolio manager at Zacks Investment Management said in an interview. “The new players in this market will need to demonstrate a clear path to profitability, and job number one will be to ramp up a consistent level of units produced and sold.”

Rivian, whose recent record nine-day rally added $11 billion to the company’s market value, has taken the biggest strides in that direction. It reported strong production numbers for the second quarter, started delivering to Europe the electric vans it makes for Amazon.com Inc., and reiterated its plan to build 50,000 electric cars this year. Despite its recent performance, the meme stock is still down about 86% from its 2021 peak.

Meanwhile, Lucid clinched a deal to supply EV-parts to British carmaker Aston Martin Lagonda Global Holdings Plc. Both companies share a big mutual backer in Saudi Arabia’s Public Investment Fund — providing them safety nets in a capital-intensive industry that is also facing the threat of a global recession. Lucid on Wednesday reported second-quarter vehicle delivery figures that missed analysts’ expectations.

Rivian shares were up as much as 2.6% in New York on Wednesday, while Lucid fell 5.5% off the disappointing deliveries. Both are still comfortably higher for the year.

On the flip side, many early entrants that were once investor darlings have met with hurdles that for some have been unsurmountable.

Lordstown Motors Corp. — which was once hailed by former US President Donald Trump for saving automaking jobs, and which commanded an equity value of $5 billion in early 2021 — filed for bankruptcy last month, after a deal with Foxconn Technology Group collapsed. Workhorse scrapped its flagship electric delivery van, and in 2022 delivered just 33 units of W4 CC — a cab chassis.

Nikola — whose market capitalization once eclipsed that of Ford Motor Co. — has struggled to keep its stock price above the Nasdaq’s minimum requirements in order to stay listed.

Overall, it is quite the turn of events since the boom days of 2020-2021, when many of these EV stocks rose to prominence, riding on the coattails of a stratospheric rally in industry stalwart Tesla Inc.’s shares. However, after 2022’s market-wide selloff and worries about high inflation, an economic slowdown and tightening central bank policy, investors are more wary about speculative growth stocks.

“We are seeing a lot more discipline in tech investing in general,” Ivana Delevska, chief investment officer at SPEAR Invest, said in an interview. Yet, Delevska noted that the setup for EV stocks has improved lately, as auto sales are holding up.

Indeed, EVs carry a lot of lure for investors as the industry is on the cusp of big changes. According to estimates from Bloomberg New Energy Finance, EVs will represent 75% of all global passenger car sales by 2040, up from 14% in 2022.

At the same time, the emergence of companies focusing on other parts of the EV ecosystem — such as battery-makers, battery-metal miners, chipmakers and charging-station operators — have provided investors the opportunity to participate in the EV trend without paying a steep premium or taking on too much risk. It has made the yet unproven EV-makers look even more unattractive.

“It is a good alternative to investing directly in ‘start up’ manufacturers,” Zacks’ Mulberry said, as despite their own sets of risks, the “road to strong cash flows and profitability is a much shorter one.”

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–With assistance from Subrat Patnaik and Yiqin Shen.

(Adds Lucid delivery details in fifth paragraph, stock moves in sixth. Updates charts.)

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