Share prices of up-and-coming electric vehicle (EV) players, Lucid Group (LCID 2.17%) and Rivian Automotive (RIVN +1.25%) are climbing higher. As with most unprofitable growth stocks, one day's gain could be the next day's loss as short-term volatility is par for the course.
While it's important not to get caught up with day-to-day price action, even long-term investors stand to benefit from monitoring major events so they can filter headlines and determine if a certain news item could have a material impact on the future of a business. Here's the latest on Lucid and Rivian and what it means.
Image source: Rivian Automotive.
What's driving Lucid higher
Each year around the third Friday of December, the Nasdaq-100 index is reconstituted to reflect the 100 largest non-financial companies listed on its exchange. After market close on Dec. 10, Lucid, Airbnb, Fortinet, Palo Alto Networks, Zscaler, and Datadog were added to the index -- replacing CDW, Fox, Cerner, Check Point Software Technologies, Trip.com, and Incyte. The change will be effective on Dec. 20.
Lucid's inclusion into the Nasdaq 100 is somewhat of a formality. But it opens the door to more potential Lucid investors who may not directly buy its stock but will buy financial products that Lucid will become a part of.
Several exchange-traded funds (ETFs), namely the Invesco QQQ Trust (QQQ +0.14%), are meant to mirror the performance of the Nasdaq 100. Therefore, these funds are tasked with holding shares of the index's components, which now includes Lucid -- opening the door to a larger buyer pool. Aside from ETFs, there are other financial products like options, futures, and other funds tied to the Nasdaq-100. Similar to when stocks get added to the Dow Jones Industrial Average or the S&P 500, being added to the Nasdaq 100 is a stamp of legitimacy from the financial markets.
In Lucid's case, the news is timely considering the company's woeful whirlwind of drama. Three major events just transpired: the U.S. Securities and Exchange Commission (SEC) subpoena of documents from Lucid on Dec. 3, a senior note offering, and CEO Peter Rawlinson selling some of his Lucid stock. These situations and broader market factors ultimately brought the share price of Lucid down over 20% last week. However, there are good reasons why the cumulative effect of these events, especially the $1.75 billion senior note offering, are a net positive for Lucid. Therefore, another reason why Lucid may be climbing higher again is that Mr. Market has had time to digest last week's events.
What's driving Rivian higher
After an initial surge past a market cap of $150 billion, Rivian has cooled off as investors grapple with broader market volatility and EV valuations. But Rivian got a big boost on Sunday when MotorTrend, a reputable industry publication, named the Rivian R1T the 2022 MotorTrend Truck of the Year. The news comes after the Lucid Air was named the 2022 MotorTrend Car of the Year.
The truck was praised for its performance, range, style, utility, luxury, and a slew of other factors that led MotorTrend to call it "the most remarkable pickup truck we've ever driven."
Unlike the highly competitive luxury sedan market, the electric truck market is more concentrated. With over 150,000 reservations, the Ford (F 0.90%) F-150 Lightning has received a lot of praise for its performance and starting price of just $40,000. Ford stock is the second-best performing U.S. automaker behind Lucid this year. It is making sizable investments into building out its EV manufacturing and battery production. However, Rivian isn't trying to go toe-to-toe with a legacy automaker like Ford. Rather, it's looking to carve out its own niche with outdoorsy and recreational folks interested in higher-priced electric trucks and SUVs.
Rivian has yet to begin mass deliveries of its vehicles. But its technology has sparked widespread attention from industry watchers and analysts. Last week, Morgan Stanley analyst Adam Jonas said that "we see it [Rivian] as 'the one' that can challenge Tesla," praising the companies lead over the competition, impressive specs, partnership with Amazon, rich cash position, and strong management team.
The better buy now
Given that Lucid and Rivian are young brands, positive reviews of their products are a sign they should be taken seriously. The main challenge for both companies is scaling production to meet customer demand and grow sales. Therefore, news that impacts either company's cash position is meaningful.
Lucid and Rivian are similar in that they both have negligible revenue, are years away from profitability, but have a ton of cash and exciting technology. Given Lucid's efficient battery pack, blending of executive luxury and a classic sports car, cost-saving decision not to build its own charging network, and its proven ability to deliver on its promises as a public company, Lucid is arguably the better buy now. However, investors could take a 50/50 split of Lucid and Rivian or invest in a basket of EV stocks to protect against an unforeseen catastrophic loss from any single company.
