Why Rivian, Tesla and Lucid Stocks Crashed in June

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What happened

June was not a good month for electric vehicle (EV) stocks. It doesn’t matter if they are widely followed start-ups like Rivian Automotive (RIVN -0.15%) and Lucid Group (LCID -0.93%) or the head of department You’re here (TSLA 1.24%). Shares of Rivian fell 18%, Lucid 15% and Tesla 11.2%, according to data provided by S&P Global Market Intelligence.

It’s been a bad month which has only added to an extended slide for these names. In fact, Rivian is down 86% from its peak last November, while Lucid and Tesla are 71% and 46% respectively from their highs of last fall. Investors may be wondering if these stocks have finally bottomed out in the near term.

So what

June’s poor performance stemmed from a culmination of troubling news for electric vehicle companies. Rivian and Lucid already had to cut their 2022 production estimates earlier this year due to supply chain disruptions. All three companies also had to raise the prices of their vehicles to combat escalating material costs. It probably won’t affect demand in general, but it won’t help the two startups on their path to profitability if they don’t recoup all of the increased costs.

This explains why investors have driven shares of Rivian and Lucid down so much. Tesla is in much better shape, having reported $5.5 billion in net income and $5 billion in free cash flow in 2021. It continues to grow its business and generated another $3.3 billion in net income. in the first quarter of 2022. But that success and more has also been priced into its stock price.

Now what

Many economies around the world are slowing down right now. Some people expect a general recession in the United States. This is not a good environment to start a new manufacturing business. It seems fewer investors are willing to take the risk of owning Rivian or Lucid stock with this kind of uncertainty.

Both are well capitalized at the moment, but that won’t carry them for too long. Rivian had $17 billion in cash at the end of the first quarter and Lucid held about $5.4 billion. This capital was raised to invest in additional manufacturing facilities and lead companies to generate positive free cash flow. In the current environment, some investors are unwilling to tie up investments while waiting to see if they succeed.

Tesla CEO Elon Musk also said the two new factories that recently started production in Texas and Germany are burning billions of dollars. But Tesla also has about $17 billion in cash and has a proven ability to run its business profitably at scale. The risk for Tesla comes more from its valuation than its execution. Even if it weathers recent headwinds and matches its first-quarter results for the remainder of 2022, it trades at a price-earnings (P/E) ratio above 50.

Rivian and Lucid both have the money and the plans in place to be able to succeed. But internal missteps or external factors can always interfere with these plans. However, for investors with a long-term mindset and keen to make aggressive investments, these names can get to the point where they seem appealing.

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