Why Is Rivian Stock Going Down? Valuation and EV Bubble, Explained

EV (electric vehicle) startup company Rivian had a strong listing. Despite increasing the IPO price considerably from the original price, it gave strong listing gains. The stock, which trades under the ticker symbol “RIVN,” continued to surge after the listing date. However, the stock fell sharply on Nov. 17 and was trading lower on Nov. 18 also. Why is Rivian stock going down and how low can the stock go?

At its peak, Rivian’s market cap crossed above $150 billion. It became the third-largest automaker behind Tesla and Volkswagen. Tesla is the largest automaker by a wide margin with a market cap above $1 trillion. No other automaker in history has commanded a market cap of $1 trillion. The Elon Musk-run company is worth more than all of the leading automakers combined.

Rivian stock is going down simply because the valuations got a bit too ahead of the fundamentals. The company’s market cap increased above that of Volkswagen. Even now, the market cap is only slightly below Volkswagen and just about half of Toyota Motors.

Volkswagen deserves a special mention here since the company has announced aggressive plans and is targeting to become the industry leader in electric and autonomous cars by 2025. German automakers like Volkswagen have always been known for their quality. There are few reasons to doubt that Volkswagen, with its many brands, wouldn't be able to compete with startup EV companies.

Rivian stock looks overvalued at these prices. It looks like a promising EV company with backing from names like Amazon and Ford, but it still needs to execute well. While it has started commercial production, and the execution risk is less compared to pre-production stage EV companies. Rivian still needs to ramp up production.

Most startup EV companies have faced production hiccups of varying degrees. While Lordstown has had to delay the production of its Endurance model by a year, others like Nikola have also faced production issues due to supply chain bottlenecks. Canoo is an exception and the company now expects to start production before the end of 2022, which is ahead of its schedule.

The rally in RIVN stock was mainly built around speculation and FOMO (fear of missing out). The rally in Rivian also led to a spike in other EV names like Lucid Motors and Gores Guggenheim (GGPI), which will merge with Volvo-backed Polestar.

RIVN went public at $78 per share and was the biggest IPO since Facebook’s 2014 debut. The stock could fall more from these levels and drift towards the $100 price level.

Jim Cramer also sounds apprehensive about Rivian stock. He thinks that it’s a FOMO rally as investors search for the next Tesla. He also drew parallels with the dot-com boom of the late '90s and advised investors to book profits in both Lucid Motors and Rivian.

Many analysts have expressed fears that there's a bubble building in EV stocks. There are some pockets of overvaluation and speculation in the industry. Not all EV companies might be able to survive as the competition in the EV industry heats up. However, given the global pivot towards EVs, the sector has good long-term prospects.