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The fact that the electric vehicle (EV) industry is going through turmoil hasn’t exactly been a secret for the last several months. However, instead of getting better, things only seem to be worsening by the day for the once sought-after “sunshine industry.”
Yesterday, EV names Lucid Group (LCID) and Rivian Automotive (RIVN) released their respective Q4 earnings after the bell, and both stocks are sinking today. RIVN is down more than 24% in early trading, while LCID has given up nearly 13% intraday.
Looking back, both companies had several laurels to their name when they went public. Lucid Motors was the biggest special purpose acquisition company (SPAC) merger up until that point, and Churchill Capital IV stock soared 550% on rumors that it would merge with Lucid Motors. LCID’s market cap rose to nearly $100 billion in 2021 amid the euphoria towards EV stocks.
Rivian raised $12 billion from its mammoth IPO, which was the biggest on Wall Street since Facebook (now Meta Platforms) (META). The startup EV company's valuation soared past $150 billion at the peak.
EV Stocks Fall Out of Favor with Investors
Cut to 2024, and the EV industry has been in the news for mostly not-so-pleasant reasons. Whether it was Tesla's cautionary note that 2024 deliveries “may be notably lower than the growth rate achieved in 2023,” or Xpeng Motors (XPEV) warning of an industry bloodbath, EV investors have had little to cheer about this year. EV bankruptcies have also continued in 2024, with Arrival (ARVLF) joining the ever-growing list of startup EV companies that are going out of business.
The Q4 earnings reports of Lucid Group and Rivian have only added fuel to the bearish fire, as investors grow even more apprehensive about the industry. Here’s what their earnings tell us about the state of the EV industry, and whether the game is over - at least, for the startup EV ecosystem.
Five Key Takeaways from Q4 Earnings: Rivian and Lucid
Here are my five key takeaways from the Q4 earnings reports of Rivian and Lucid Group.
1. The macroeconomic slowdown and higher interest rates are hurting EV companies: Both Rivian and Lucid talked about the impact of the macroeconomic slowdown and higher interest rates on their sales. Tesla (TSLA) CEO Elon Musk has also been blaming higher interest rates for slowing down EV sales for quite some time now.
2. The near-term delivery outlook is quite bearish: Lucid expects to produce around 9,000 vehicles in 2024, which - while ahead of the 8,428 vehicles it produced last year - fell well short of analysts’ estimates. Rivian, on the other hand, expects to produce 57,000 vehicles in 2024, which is slightly below 2023 levels - and, like Lucid, way below Street estimates.
3. Both Rivian and Lucid are banking on new models to revive their fortunes: Like Tesla, Rivian and Lucid started off by selling higher-priced models and are now pivoting to lower-priced models. Rivian expects to unveil its lower-priced R2 SUV next month. Lucid is also planning to launch a mid-sized car by mid-2026 at a price point of around $50,000, which CEO Peter Rawlinson believes will enable it to compete with Tesla's Model 3 and Model Y (the latter of which was the best-selling model globally last year across gasoline and electric cars, marking the first time that an EV model achieved the feat).
4. Cost cuts and efficiency: Both Rivian and Lucid are working on aggressive cost cuts to drive “efficiencies,” and RIVN announced a 10% cut in its salaried workforce. Through these cuts, both these companies expect their gross margins to improve, and Rivian is hopeful of posting a modest gross profit in the final quarter of the year.
5. Both Rivian and Lucid have cash to fund their operations until 2025: Lucid and Rivian are among the better-financed startup EV companies in the U.S., and have enough cash to fund their businesses into 2025.
The EV Industry’s Woes Appear Far from Over
All things considered, I believe that the EV industry’s woes are far from over amid the macro slowdown and high interest rates – which are only compounded by the oversupply and tepid demand. Tesla’s price war, which has prompted other companies - including legacy automakers, like Ford (F) - to cut prices is not helping matters, either.
The EV industry’s turmoil might persist through the next several quarters, and we’ll need a stabilization of the macro environment - and especially the normalization of interest rates, as well as some sort of price discipline - before EV stocks start to shine again. Until then, it looks like a race towards the bottom, and we might see more bankruptcies and consolidation in the markets as financially fragile companies will find the going tough.
As for Rivian and Lucid, both companies have an attractive product proposition, relatively strong balance sheets, and backing (including mega orders) from their largest shareholders - which are Amazon (AMZN) and Saudi Arabia’s sovereign wealth fund, respectively. That makes them worthy contenders to survive the current slump.
That said, the Q4 earnings of RIVN and LCID are yet another grim reminder that the EV industry is not out of the woods yet. If anything, the troubles are expected to worsen in the near term, and startup EV companies are particularly vulnerable amid the current environment.
On the date of publication, Mohit Oberoi had a position in: XPEV , F , TSLA , RIVN , LCID , AMZN , META . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
