What happened
The market has been building momentum with a risk-off mentality over the past several trading days. Electric vehicle (EV) start-ups are near the top of the risk spectrum, and several stocks are plunging accordingly. Rivian Automotive (RIVN +1.75%) and Lucid Group (LCID 1.88%) are two domestic producers that were down 5.9% and 9%, respectively, as of 10:45 a.m. ET. China-based Nio (NIO 4.43%) was also deeply in the red, down 10.8%.
So what
While the macro environment is the driving force for today's drops, it only highlights the underlying risks associated with investing in these names. Rivian and Lucid have only been in commercial production for about six months, and both have faced headwinds from supply chain challenges and rising raw material costs. While Nio doesn't quite qualify as a start-up with more than 200,000 cumulative deliveries, it also has faced those challenges and more, due to recent COVID-19 lockdowns in major Chinese cities.
NASDAQ: RIVN
Key Data Points
Now what
The good news for these companies and investors is they are all in good financial shape to weather the current economic storm. As of March 31, 2022, each had a significant amount of cash on its balance sheet.
- Rivian -- $17 billion
- Lucid -- $5.4 billion
- Nio -- $8.4 billion
But each also has plans for investing those funds, and none are yet recording positive cash flow. Last week, Rivian CEO R.J. Scaringe released his first letter to shareholders. He touted the opportunities that exist from the transition in transportation to electric power. Specifically, Rivian has a consumer side with its R1 platform trucks, as well as a commercial business. Its commercial electric delivery van (EDV) business has a 100,000 vehicle order from early investor Amazon. Scaringe noted that its cash pile will get it through its plans to build a second factory in Georgia and the launch of its second consumer vehicle platform in 2025.
NASDAQ: LCID
Key Data Points
Lucid also has plans for a second factory, but is expanding internationally into Saudi Arabia. For its part, Nio has expanded out of China and into Europe already, and plans to grow that business in several more European countries this year.
NYSE: NIO
Key Data Points
But Nio has also been struggling to keep its production going as lockdowns in China have hit the supply chain, as well as consumers' abilities to buy vehicles in recent weeks. Near-term challenges should subside eventually, though, allowing it to get back to normal operations.
The overall investing landscape is also changing with inflation and increasing risks of recession across the globe. Higher-risk, unprofitable companies like Rivian, Lucid, and Nio are increasingly out of favor in this environment. That is clearly on display today as market fears rise and these EV names tumble. There may be more downside, too, as these risks continue.
