What happened
Electric-vehicle (EV) start-up Rivian Automotive (RIVN 2.44%) is experiencing some growing pains, and investors are jumping out of the stock today, as a result. Shares plunged on some news the company announced late Friday, and the stock is near the day's lows, down 10.3% as of 11:20 a.m. ET today.
So what
On Friday, the company announced the recall of over 12,200 of its electric vehicles for a potentially loose fastener that's part of the steering assembly. The company believes only about 1% of the recalled vehicles have the defect and will need the fastener to be tightened. But Rivian has only produced about 15,000 EVs since it began production late last year, so most of its trucks that have already been delivered are affected by the announcement.
Now what
Today's decline represents about a $3 billion drop in Rivian's market capitalization. On the surface, that seems like an overreaction for what will be a quick fix on just over 100 vehicles. But it's really more of a factor of the company's high valuation. Rivian is still a long way from profitability, and investors have valued it on its promise and potential.
The potential for Rivian's success hasn't changed, but the recall seems to have shaken investor confidence. Ramping up production at an automobile factory is bound to have some ups and downs.
With Rivian's more than $30 billion valuation based solely on future potential, some investors don't have the patience to hold shares through some turbulence. Today's drop is the result of that but offers longer term investors a good opportunity if they believe Rivian will eventually fulfill its potential as an EV-sector winner.
