What happened
The volatile electric vehicle (EV) sector was mostly lower on Wednesday morning, but with one notable exception. Shares of Rivian Automotive (RIVN -3.62%) and Lucid Group (LCID -3.92%) both dropped as much as about 5% before paring some of those losses. As of 11:30 a.m. ET, Rivian stock was down 1.3% and Lucid was off by just 0.3%.
But early-stage start-up Canoo (GOEV -6.90%) was going in the other direction. Canoo shares spiked 11% and held onto a gain of 8.3% at that time. There was good reasons for both moves, too.
So what
The drops for Rivian and Lucid were spurred by one influential EV sector analyst. Morgan Stanley analyst Adam Jonas said it was time for investors to lower exposure in the EV sector, Barron's reported today. But Jonas had mixed opinions of specific names. The analyst thinks investors should sell Lucid stock, and cut the stock's price target in half, to $5 per share.
Jonas believes investors should own Rivian shares, but the market likely reacted to his price target cut on that stock as well. Jones slashed the estimate for Rivian shares nearly in half to $28 per share. But that price would still represent a gain of 55% from yesterday's closing price, which explains the guidance to buy Rivian.
Jonas didn't mention Canoo, but that company announced a new partnership agreement today that has investors feeling more bullish. Canoo management said it didn't know if it could continue as an operating business early last year, but several positive developments have occurred since then. That includes this new agreement that has the company set up to sell its multipurpose EVs in Saudi Arabia. Canoo's Saudi partner will facilitate the sale, distribution, service maintenance, and repair of Canoo vehicles there.
Image source: Rivian Automotive.
Now what
Lucid Group also wants to do business in Saudi Arabia. It has plans for constructing a manufacturing facility there. It will send parts from its Arizona factory for final vehicle construction there before it has operations fully up and running at the Saudi facility. Lucid also plans to sell its next vehicle model in that country. It expects to begin taking reservations for its Gravity luxury SUV in North America early this year to prepare for deliveries to begin in 2024. Deliveries to the Middle East and elsewhere will follow.
Jonas clearly doesn't think the company will successfully execute on those expansion and growth plans. If that prediction is wrong, Lucid could be seen as an undervalued growth stock. But investors willing to take that view should also be willing to risk losing their investment if Lucid's plan fails or the company runs out of money.
Rivian also remains a very risky stock. It, too, could run out of money even though it had almost $14 billion in cash and equivalents as of Sept. 30, 2022. Management has acknowledged that will only get it through 2025.
Investors interested in these high-risk names should be watching when Lucid and Rivian release their 2022 fourth-quarter and full-year reports on Feb. 22 and Feb. 28, respectively.
