For the fourth trading day in a row, Rivian (NASDAQ:RIVN) stock is falling. Down 3.5% as of 1:35 p.m. ET, Rivian stock actually costs less today than it did at its initial public offering (IPO) two months ago.
But why is Rivian falling?
A couple of theories suggest themselves. First and foremost, Rivian is an unprofitable electric truck start-up. As my Motley Fool colleague Joe Tenebruso pointed out yesterday, “Investors have shifted their focus from growth potential to valuation and risk management.” There are few things riskier than investing in companies that aren’t earning money, of course. Today’s Rivian-selling could be a simple symptom of investors fleeing stocks without profits.
(On the plus side, though, with 1,000 trucks sold last year, Rivian should finally have some revenues when it reports earnings a couple of months from now — and perhaps profits thereafter.)
A second reason that investors might be leery of owning Rivian right now can be summed up in four short letters: F-O-R-D.
Yesterday, you see, Ford Motor (NYSE:F) announced that it plans to book an $8.2 billion gain from its investment in Rivian when it reports earnings next month. On the one hand, that sounds like good news for both Ford and Rivian, but here’s the thing: Ford’s gain from its investment in Rivian is getting smaller and smaller with each successive day Rivian’s stock price declines.
Meanwhile, for the past couple of months at least, analysts from Jim Cramer to investment bank RBC Capital to…us!…have been speculating that Ford might want to sell its stake in Rivian to lock in whatever profits remain. Already, Ford has confirmed that it no longer intends to partner with Rivian on the production of new electric vehicles. Instead, Ford will go it alone, and plans to spend $30 billion in building out its electric car business over the next four years.
Suffice it to say that $8.2 billion in Rivian profits would go a long way toward covering Ford’s EV investments but only if Ford sells its Rivian stake before the profit evaporates. It’s this threat that Ford will sell (and the negative impression investors will likely form of Rivian’s future) that I suspect is pressuring Rivian shares today.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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