What happened
Shares of electric-vehicle maker Rivian Automotive (RIVN 6.10%) opened lower again on Tuesday as traders and investors continued to sell off auto stocks while awaiting the results of a Federal Reserve Bank policy meeting.
As of 10:15 a.m. ET, Rivian's stock was down about 6.9% from Monday's closing price.
So what
It's no secret that U.S. inflation is at levels not seen in decades, and it's not much of a secret that the Fed is likely to respond by raising interest rates -- and probably soon. The Fed's Open Market Committee is meeting today and tomorrow. Most observers expect the meeting to conclude with a signal that rates will begin to rise in March.
Rising interest rates can be a challenge for automakers. Auto companies from Ford Motor Company (F -1.92%) to Tesla (TSLA -1.11%) have had great success selling highly profitable premium models and trims in recent years, thanks in large part to low interest rates. Many consumers set their car-buying budgets by calculating the level of monthly payments they can afford; as interest rates rise, a smaller portion of those monthly payments will go to automakers. That will lead customers to choose less expensive models, and that will cut into automakers' profit margins.
That's the theory, at least. In practice, it will likely take several interest rate hikes before automakers start to see noticeable margin erosion. But the concern is real, and that's probably putting pressure on many auto stocks today, including Rivian's to some extent.
Rivian's R1T pickup has received glowing reviews since it began shipping last fall. But Rivian's stock has had a rough ride over the last couple of months. Image source: Rivian Automotive.
Separately -- but related -- there's also a broader move away from risky growth stocks unfolding as investors position themselves for a higher interest rate environment (and as last year's overheated meme stocks continue to fall out of favor). That is putting additional pressure on Rivian's shares today.
Now what
While Rivian has stumbled a bit in its first months as a public company, I continue to think that it's a well-managed automaker with a good chance of building a sustainable EV business. That said, even with the stock down over 60% from its post-IPO high in November, it's still very expensive relative to its likely sales over the next couple of years. Caution and patience will be required.
Investors will have the chance to hear from CEO RJ Scaringe and his team when the company reports its fourth-quarter financial results, likely in the second half of February.
