Rivian Stock Set to Join Nasdaq 100 a Year After Its Blockbuster IPO

The Nasdaq 100 Index would do an annual rebalancing this week and add Rivian, Warner Bros, Baker Hughes, Global Foundries, Diamondback Energy, and CoStar Group.

The index would boot out Baidu, DocuSign, Splunk, Match Group, NetEase, VeriSign, and Skyworks Solutions. Rivian stock is trading lower in US premarket today though after the company called off its deal with Mercedes.

Stocks tend to rise on inclusion in an index

Notably, stocks tend to rally on news of inclusion in major indices. Passive funds and ETFs have to hold all the stocks in the index in the same proportion. Once a stock joins an index, funds that track the index need to buy the stock. The converse also holds true and index funds have to sell any stock that exits the index.

Incidentally, in 2020, the S&P 500 added Tesla stock. The news triggered a rally in Tesla stock. 2020 was anyways a pathbreaking year for EV stocks and Tesla stock rose over 740% in the year. It continued its rally in 2021 and added another 50% to its market cap. However, the stock crashed in 2022 and has lost half of its market cap.

Both Amazon and Ford invested in Rivian. Ford has however sold some of the shares after the IPO.

Rivian was the largest IPO since 2014

When Rivian listed last year, it became the biggest listing since Facebook’s 2014 listing. Rivian’s IPO sailed through easily and the company priced the shares at $78 each, which was above the already increased price range. The stock had a good listing and went on to hit an all-time high of $179.47, which was over twice the IPO price.

At its peak, Rivian commanded a market cap of over $150 billion. Many saw it as a sign of optimism towards pure-play EV companies. However, there were skeptics, which included Tesla’s CEO Elon Musk, who found the valuation too high. Musk, who uses his Twitter account brilliantly to connect with his millions of followers, mocked the high valuations of Rivian.

He said that both Rivian and Lucid Motors might go bankrupt. Musk added, that unless they “can cut their cost dramatically, they are in deep trouble and will end up in the car cemetery like every other (US automaker) with the exception of Tesla and Ford.”

Rivian holds ample cash on its balance sheet

Notably, Lucid Motors has just under $4 billion as cash on its balance sheet but it said that the cash would only fund its capex and operations until the end of 2023. Last month, it announced a stock sale program to bolster its cash position.

Rivian meanwhile has a much healthier balance sheet and had $13.8 billion as cash and cash equivalents at the end of the third quarter. The company said that the cash is enough to fund its business until 2025.

Startup EV companies are posting losses

Startup EV companies are posting massive losses and Rivian lost $1.74 billion in the third quarter of 2022, which was similar to the previous quarter. However, the company reported a rise in preorders.

In contrast, Lucid Motors reported a fall in its orders while releasing the Q3 2022 earnings. Lucid Motors stock has slid below the SPAC IPO price of $10.

The fortunes of startup EV companies turned for the worse in 2022. Rivian stock fell to an all-time low of $19.25 and its market cap fell below the cash on its balance sheet. However, the stock has since rebounded.

Investors have been getting increasingly wary of startup EV companies as many are struggling with production. Names like Nikola, Lordstown Motors, and Arrival have plunged this year as they continue to disappoint with their execution.

Rivian is ramping up production

Rivian currently has two models, the R1T pickup truck and the R1S sports SUV. It is also producing delivery vans for Amazon. The volatility in RIVN stock has also impacted Amazon and Ford, its two biggest stockholders. While both Ford and Amazon booked billions of dollars of mark-to-market gains on Rivian in the fourth quarter of 2021, they have since booked massive losses amid the crash in Rivian stock.

Rivian currently has one plant in Normal in the US. It is looking to set up a second plant in Georgia which would have an annual capacity of 400,000 cars. The company expects to roll out vehicles from the plant, which would be built at a cost of $5 billion, in 2024. Rivian expects to have a total production capacity of 600,000 cars between the two plants.

However, in the short term, Rivian is battling supply chain woes like other automakers. It cut its 2022 production target by half to 25,000 and also delayed the launch of R2 from 2025 to 2026.

Analysts like Rivian stock

Wall Street analysts are mostly bullish on Rivian stock. In September, Truist analyst Jordan Levy said, “As Rivian pushes through the formidable challenges of ramping 4 different vehicles amidst a historically difficult supply chain backdrop, we believe the market will come to see Rivian not just as a successful EV manufacturer with a powerful partner in Amazon, but as a leading example of a next-generation diversified mobility tech powerhouse.”

Levy is also optimistic on RIVN’s partnership with Amazon. He said, “We see Amazon’s initial purchase of 100,000 EDVs through 2030 underwriting steady growth in RIVN’s commercial segment and driving meaningful demand from other fleet owners moving into the latter half of the decade.”

Mizuho also reiterated its buy rating on Rivian stock. The brokerage likes RIVN stock due to its low exposure to China. It finds Rivian models well-placed and believes the 100,000 EDV order from Amazon would be a key driver.

Tesla’s China sales are slowing

Notably, car sales in China are slowing down and multiple reports suggest that Tesla is looking to cut production in the country. Tesla stock has anyways been sliding since Musk acquired Twitter in October. His Twitter antics have made even some of the renowned Tesla stock bulls apprehensive about the stock.

As for Rivian, while it would dodge the slowdown in China, things are not that rosy in the US as well and many including Musk believe that the Fed’s rate hikes would push the US economy into a recession.