In case you haven't noticed, it's been a rough year for Wall Street and everyday investors. Since each of the three major U.S. stock indexes hit their all-time highs between mid-November and the first week of January, they've all fallen by 22% to 34%, which firmly places them in a bear market.
It's been an especially difficult time for innovative growth stocks that were valued at a premium. Electric vehicle (EV) stocks are a perfect example.
Two Rivian R1T's climbing a trail. Image source: Rivian Automotive.
Based on a recent report from Fortune Business Insights, the global EV industry is expected to grow from $287.4 billion in 2021 to $1.318 trillion by 2028. For those of you keeping score at home, we're talking about a compound annual growth rate of 24.3%. With most developed countries wanting to reduce their respective carbon footprint, promoting cleaner-energy vehicles represents a no-brainer growth opportunity.
Nevertheless, Wall Street becomes less forgiving of operating losses during a bear market. As a result, most EV stocks have fallen between 40% and 90%+ since hitting their all-time highs.
But this doesn't mean Wall Street's most-successful investors have given up on the industry or its fast-growing companies. What follows are three electric vehicle stocks down 78% to 80% that billionaires can't stop buying.
Rivian Automotive: Down 80% from its all-time high
First up is what's arguably the most beaten-down EV stock of the group that billionaire investors love: Rivian Automotive (RIVN -2.21%). Despite plunging 80% from its intra-day high set shortly after its initial public offering in November, billionaire Jim Simons of Renaissance Technologies has put the pedal to the metal when adding Rivian to his fund's portfolio. Simons oversaw the purchase of more than 1.91 million shares of Rivian during the second quarter.
The answer to "Why Rivian?" entails both legitimacy and innovation. In terms of the former, Simons was likely impressed with the company landing a sizable order from e-commerce giant Amazon in September 2019. Although Amazon has ample operating cash flow to throw around, ordering 100,000 EDVs (electric vans) isn't exactly a drop in the bucket. This order legitimized Rivian as a force to be reckoned with in the EV space long before it became a publicly traded company.
The other differentiating factor for Rivian is its design -- specifically for its R1T pickup. Not only was Rivian able to beat pretty much every other EV producer to market with an all-electric truck, but the R1T looks to be in a class of its own given its luxury focus. Even when competitors make it to market, nothing truly competes with the R1T.
Despite ongoing supply chain challenges caused by the COVID-19 pandemic and historically high inflation, Rivian appears to be on track to meet its previous forecast of 25,000 EVs produced in 2022. That's good news.
The bad news is Rivian isn't anywhere close to being profitable, and it's probably a few years away from having any shot at recurring profitability. That's an unfavorable recipe with a lot of economists forecasting a U.S. recession at some point in the not-so-distant future.
Lucid Group: Down 78% from its all-time high
A second fast-paced EV stock that's plummeted, yet is still loved by billionaire investors, is Lucid Group (LCID 1.19%). Despite a 78% decline from its all-time intra-day high, billionaire Philippe Laffont of Coatue Management has been a persistent buyer. During the second quarter, Laffont's fund more than doubled its existing stake in Lucid by purchasing nearly 4.47 million shares.
To some investors, Lucid is viewed as the closest thing to "the next Tesla (TSLA 12.06%)." Tesla's early success involved bringing the luxury Model S sedan to mass production. With the world's leading EV maker by market cap now focused on building the more-affordable Model 3, market share in the luxury EV sedan space is ripe for the picking. The Lucid Air has a real chance to become the EV sedan of choice in the luxury arena.
Another possible reason for Laffont to pile into Lucid is the company's balance sheet. Lucid closed out the second quarter with $4.6 billion in cash, cash equivalents, and investments, which makes it one of the better-capitalized EV companies. With Lucid wanting to boost production of its sedan and introduce an SUV by 2024, this capital will come in handy.
But as with Rivian, there are serious headwinds for Lucid to contend with. It's liable to continue losing money and may need to rely on a recently filed $8 billion mixed-shelf offering to raise capital. If Lucid were to sell additional shares, the dilutive effect would likely weigh on its share price.
The other concern for Lucid is that key production milestones aren't being met. Wall Street was initially expecting closer to 20,000 EVs would be produced this year. Due to supply chain issues, Lucid reduced its forecast to 12,000-14,000 EVs. When reporting its second-quarter results, Lucid halved its already-lowered forecast to a new range of 6,000-7,000 EVs. Further, it's pushed the launch of its Project Gravity SUV back by a year to 2024. These delays won't be viewed positively by Wall Street or investors.
Deliveries of the Nio ET7 sedan began in March 2022. Image source: Nio.
Nio: Down 78% from its all-time high
The third and final electric vehicle stock that billionaires can't stop buying is Nio (NIO 3.49%). Since hitting its record intra-day high in January 2021, Nio's shares have tumbled 78%. But that's not stopping Simons at Renaissance Technologies from putting his money to work. Simons oversaw the purchase of close to 12.4 million shares of Nio during the second quarter, which made the EV maker a top-35 holding for his fund.
What's made Nio such an exciting company is its geographic opportunity and innovation. Nio is based in China, which is the No. 1 auto market in the world. This nascent market is ripe for disruption, which should give the company a real chance to be a serious player in a key global market.
In terms of innovation, Nio has been introducing at least one new EV each year. The company's recently launched sedans, the ET7 and ET5, are direct competitors to Tesla and provide superior range with the top battery upgrade option.
The company's management team has also been thinking outside the box. During the pandemic, Nio introduced its battery-as-a-service (BaaS) subscription. With BaaS, buyers receive a discount on the initial purchase price of their EV, and can charge, swap, or upgrade their batteries at a later date. In exchange, Nio generates high-margin subscription revenue and keeps early buyers loyal to the brand.
But similar to Rivian and Lucid, Nio is contending with supply chain issues. Instead of making a run at producing 50,000 EVs a month within a year, as expected, Nio is producing closer to 10,000-11,000 EVs per month. However, unlike Rivian and Lucid, Nio appears to have a faster path to recurring profitability, thanks in part to its diverse lineup of EVs. Among the three beaten-down electric vehicle stocks listed here that billionaires can't stop buying , Nio has the most-promising upside.
