What happened
The stocks of electric vehicle (EV) sector companies jumped Thursday morning with news that indicated the market looks to continue to grow at a fast pace. But after each popping at least 5%, shares of Rivian Automotive (RIVN 3.58%), Lucid Group (LCID 2.65%), and charging network leader ChargePoint Holdings (CHPT -1.19%) reversed those early gains.
As of 11:11 a.m. ET, Rivian stock was down by 2.9%, Lucid was lower by 2.1%, and ChargePoint was off by 3.7%.
So what
The original excitement came after sector leader Tesla provided an encouraging fourth-quarter earnings report. That's because all of these companies need the EV market to continue to grow at a fast rate. But once one digs into the details of Tesla's earnings report, it's clear that there may be more bad news than good for Rivian, Lucid, and other emerging EV makers.
Image source: Rivian Automotive.
Now what
Tesla has been cutting prices on its EVs in recent weeks. But it left investors guessing as to why it would slash vehicle pricing by as much as 20%. One thought was that as the early-stage manufacturers like Rivian and Lucid increase volume, Tesla is seeing demand for its products drop.
That view was bolstered by large increases in the rates of production from Rivian and Lucid in the fourth quarter. Lucid produced 49% of its vehicles for 2022 in just the final three months of the year. For Rivian it was also over 40% of full-year production. So production growth rates accelerated over the course of 2022.
But Tesla's well-received earnings report doesn't mean that EV market growth ensures success for the newer entrants. In fact, on Tesla's earnings conference call, CEO Elon Musk predicted "probably a contraction in the automotive market as a whole" in 2023.
Analysts are also starting to predict winners and losers in the sector. Yesterday, Barron's shared a new report from Morgan Stanley analyst Adam Jonas that didn't show much confidence in the outlook for Rivian or Lucid. Jonas slashed share price targets for both companies by about 50%.
He also named Tesla his top EV pick with a price target that would result in strong gains from recent prices. Tesla didn't indicate that lowering prices for its electric cars was in response to inroads made by the competition. That means EV companies that have yet to make a profit still have a long, uphill battle ahead.
