Several factors have come together that have scared investors out of Rivian Automotive (RIVN -2.19%) stock this week. In just the past two days, Rivian shares have plunged almost 20%.
The electric vehicle (EV) start-up will provide its operational and financial update next week, and investors are worried about what they'll hear. Especially after the company already has said it needs to raise prices to offset increasing costs. When a stock with high growth potential drops this much, investors may be wondering if it's a great opportunity to jump in, or if the stock is dropping for good reason.
Image source: Rivian Automotive.
Rivian said it will need to raise prices on its R1T pickup truck and R1S SUV models by as much as 20%. Jiten Behl, the company's chief growth officer, blamed "inflationary pressure, increasing component costs, and unprecedented supply chain shortages and delays for parts (including semiconductor chips)," in a statement reported by Reuters.
The company had more than 71,000 preorders for its R1 models as of Dec. 15, but had only shipped about 1,000 as of the end of 2021. A price increase like this for customers that have been waiting for orders to be filled isn't going to sit well -- particularly at a time when bigger, more established legacy automakers are getting ready to ramp up production of both electric pickups and SUVs. This is a time Rivian needs to build its brand to be able to compete with companies like Ford and General Motors as their new electric offerings come to market.
Even with this week's drop, Rivian is valued with a market cap of nearly $50 billion. That lofty valuation has built in the expectation that the company could successfully ramp up its production volume to a level that could approach profitability. Inflation and supply chain constraints stemming from impacts of the pandemic are real and affecting most every industry. But investors are likely to flee from businesses that include more uncertainty, especially when growth has already been largely built into the share price. Even aggressive investors that believe in the potential for long-term EV growth and Rivian's prospects will likely find better entry points coming.
