What happened

Ramping up a young business during an economic downturn or recession is an uphill battle. That's even more true when the business in question is highly capital-intensive and operates in a sector that's still maturing. And after Wednesday's interest-rate decision by the Federal Open Market Committee -- the policy-making arm of the Federal Reserve -- the market seems to be assuming that a hard landing or recession is coming.

That mentality had unprofitable, growth-oriented EV stocks slumping Thursday morning. As of 11 a.m. ET,  Rivian Automotive (RIVN 2.58%), was down 7.4%,  Lucid Group (LCID 9.52%) was had dropped by 9.7% and Nikola (NKLA -3.06%) was off by 7.9%.

So what

Some investors are taking the Fed's decision to boost benchmark interest rates faster than previously expected as a signal that a recession is unavoidable. At the very least, it looks as if economic growth in the near term will be bumpy. Rivian and Lucid had already lowered their forecasts for 2022 vehicle production due to supply chain issues. And rising raw material costs are affecting all manufacturers, but they are particularly problematic for companies that have only recently begun commercial production and sales. 

Now what

Against the current macroeconomic backdrop, investors' outlooks on these start-up EV companies are starting to shift from optimism and a focus on future potential to being concerned about their chances of survival. That helps explain why Rivian's valuation is down 75% year to date. Similarly, Lucid and Nikola are down by 58% and 47%, respectively, in 2022. 

Rivian had a cash stockpile of $17 billion as of March 31. CEO RJ Scaringe said in his annual letter to shareholders last week that the company has enough capital to get through its 2025 growth plans. That includes building a $5 billion second manufacturing plant and launching its R2 next-generation vehicle platform. But if the economy does enter a recession this year, it might not be back in growth mode by 2025. 

That kind of economic scenario could be even worse for Lucid and Nikola. Both sell high-priced vehicles. Lucid's luxury electric sedans currently list for up to $169,000. And while Nikola will try to tout the long-term savings its electric semi-truck could provide to buyers, customers will still have to lay out $300,000 up front to get one, before any tax credits or incentives. 

While Lucid ended the first quarter with almost $5.4 billion in cash on its balance sheet, it is perhaps looking at the current environment in a new light. That was apparent Wednesday when it announced it had opened a new $1 billion revolving credit facility. It acknowledged that it already expects its cash to be spent by next year. So it might need the new credit line if product sales don't grow quickly. 

Investors are taking the hint and dumping these names and others they bought based on long-term high-growth projections.