Investors are betting big on EV stocks.
The sector has attracted a ton of attention since Tesla (TSLA -1.11%) skyrocketed in 2020 as the company turned profitable and traditional automakers turned their attention to electric vehicles.
Most of the industry now seems to accept that electric vehicles will eventually displace combustion-powered ones, and that's made pure-play EV stocks like Rivian (RIVN 6.10%) and Lucid Motors popular as well, though both stocks are down substantially from their earlier peaks.
However, a recent move by Ford (F -1.92%) is the latest sign that the EV boom could be fading.
Layoffs strike Ford Lightning
On Monday, Ford said it was laying off 700 workers at its F-150 Lightning plant, cooling off hopes for the electric version of its top-selling pickup truck.
The move was unrelated to the ongoing United Auto Workers strikes, and the company blamed the layoffs on "multiple constraints, including the supply chain and working through processing and delivering vehicles held for quality checks after restarting production in August," according to CNN.
Sales of the Lightning were down 45% in the third quarter due in part to a planned shutdown at the plant to expand capacity, but there's some evidence that the layoffs may be the result of underwhelming demand. One UAW leader wrote in a memo, "It doesn't take a rocket scientist to figure out that our sales for the Lightning have tanked," according to The Wall Street Journal. The report also said that Ford is looking to make more gas-powered trucks instead.
That news comes amid other signs that demand for EVs is slowing. While EV sales were up 51% in the U.S. through the first three quarters of the year, inventory is beginning to pile up as early adopters have already made their purchases, and the industry seems to be struggling to convert more skeptical consumers. In some instances, sales of hybrids have been growing faster than EVs, and prices have begun falling for electric vehicles, nearly across the board, a sign that the industry is entering a new, more competitive phase and that customers are becoming more price-sensitive.
Even Tesla, the domestic industry leader, posted a sequential decline in production and deliveries in the third quarter due in part to planned shutdowns, though it maintained its target for 1.8 million vehicle deliveries this year.
Image source: Rivian.
What it means for Rivian
Rivian (RIVN 6.10%) currently gets a significant portion of its revenue from its R1T pickup truck, making it a close competitor to the Ford F-150 Lightning.
The upstart EV maker impressed investors with third-quarter deliveries of 15,564 vehicles and production of 16,304 vehicles, better than expectations, and it took on new debt to help expand capacity, a bullish signal.
Rivian has also bucked the industrywide trend of price cuts as CEO RJ Scaringe said on the second-quarter earnings call that the company would not follow its peers in lowering prices. The R1T is currently priced starting at $74,800.
For now, Rivian is focused on ramping up production, especially for its R1S SUV, but it has worked through most of its waitlist for the R1T, and it even held a sales event at its Illinois factory in order to help move unsold inventory. The company sells its vehicles online and lacks a traditional dealer network.
With Ford pulling back on Lightning production, Rivian seems to have an opening to grab market share from its close competitor, but that strategy will only be successful as long as the tide is rising in the EV industry.
Unlike its legacy competitors and even Tesla, Rivian is still deeply unprofitable, with a net loss of $1.2 billion in the second quarter, and it's still operating at a negative gross profit. Rivian expects to reach a positive gross profit next year, but baked into that forecast is the assumption that demand for its vehicles and EVs will continue to rise. Meanwhile, the EV market continues to get more crowded, with new models from foreign automakers coming online, and Rivian will have to stand out from the competition in order to be successful. CEO RJ Scaringe said as much on an earlier earnings call.
We already know the company's third-quarter deliveries and its guidance to produce 52,000 vehicles this year, but look for more commentary from Scaringe about demand, backlog, and orders in the third-quarter earnings report due Nov. 7.
In order to deliver for investors, Rivian needs to prove that it can both ramp up production and sustain strong demand for its vehicles. That could be harder to do than investors think, especially considering the latest evidence in the EV industry.
