Rivian Automotive (RIVN -6.82%) was one of the hottest IPOs of 2021. The maker of electric trucks, SUVs, and vans went public at $78 a share in November 2021, and it generated a lot of buzz because its top investors were Amazon (AMZN 1.67%) and Ford Motor Company (F -0.15%). Rivian had also started mass-producing its electric vehicles (EVs) ahead of its IPO, which made it seem more reliable than other pre-production EV makers that went public by merging with special purpose acquisition companies (SPACs).

Rivian's stock opened at $106.75 on the first day and skyrocketed to an all-time high of $172.01 just a week later. But today it trades at about $20 a share. A $3,000 investment in its IPO would have blossomed to over $6,600 before withering to less than $800 today. Let's see why Rivian's stock initially soared, why it plummeted, and where it might be headed in a year.

Rivian's R1 pickups at its plant in Normal, Illinois.

Image source: Rivian.

Why the bulls initially loved Rivian

Rivian manufactures three types of EVs: the R1T pickup truck, the R1S SUV, and Amazon's electric delivery van (EDV). Its R1 vehicles start at about $70,000 and can travel over 300 miles on a single charge.

Amazon had also placed an order of 100,000 EDVs in 2019, while Ford's Lincoln division had been developing a new EV with Rivian prior to the pandemic. Rivian initially told investors that it could produce 50,000 vehicles in 2022, and it expected to fulfill Amazon's entire order by 2025. Its total number of preorders for R1 vehicles (excluding Amazon's initial EDV order) also surged from 71,000 in the third quarter of 2021 to over 114,000 in the third quarter of 2022.

Why the bears eventually chased away the bulls

But shortly after Rivian's public debut, the cracks started to appear. First and foremost, the market's untempered enthusiasm for Rivian boosted its market cap to $153 billion -- 85 times the sales it's expected to generate this year -- and made it more valuable than Ford and General Motors.

Rivian was more than priced for perfection at that nosebleed valuation, so it couldn't afford to make any mistakes. But shortly after its IPO, Ford abandoned its plans to co-develop new Lincoln EVs with Rivian, which had already been suspended since the start of the pandemic. This January, Amazon agreed to start buying Stellantis' Ram ProMaster electric vans in 2023. Amazon also postponed its target for receiving the full fleet of 100,000 Rivian EDVs from 2025 to 2030. Investors widely interpreted all those decisions as a loss of confidence in Rivian's production capabilities.

Those fears were confirmed this March when supply chain constraints forced Rivian to reduce its annual production target to 25,000 vehicles. In May, Ford reduced its stake in Rivian from 12% to less than 10%, while Amazon maintained its 20% stake and remained the automaker's top investor.

Rivian has produced 14,317 vehicles in the first three quarters of 2022, so it will need to produce over 10,000 vehicles in the fourth quarter to achieve its full-year target of 25,000 vehicles. Rivian believes it can achieve that lofty goal, but a recent recall (of almost all the vehicles it produced this year), allegations of safety violations, and the suspension of its EV joint venture with Mercedes-Benz to produce electric vans in Europe all raised fresh concerns about its production capabilities.

Rising interest rates finished off the stock (for now)

Rivian's stock might have had a softer landing if interest rates were low and investors still had a healthy appetite for speculative EV stocks. Unfortunately, soaring interest rates over the past year drove investors toward more conservative investments and punished unprofitable companies like Rivian, which racked up a staggering net loss of $5.03 billion in the first nine months of 2022 while only generating $995 million in revenue.

To make matters worse, Rivian's stock still doesn't look cheap after its precipitous decline. It's still valued at about $17 billion, or 10 times the sales it's expected to generate this year (if it actually delivers 25,000 vehicles). By comparison, Tesla trades at 5 times this year's sales.

I personally believe Rivian is more promising than many of the SPAC-backed EV makers that flopped over the past year. But until it successfully ramps up its production and interest rates stabilize, it will remain out of favor in this tough bear market.