Shareholders of Rivian (NASDAQ:RIVN) are having a rough 2022 so far, as shares of the stock have dropped by more than 17% in the first week of trading. In fact, shares of RIVN stock momentarily plunged below its initial public offering (IPO) listing price of $78 before rebounding. So, what exactly explains Rivian’s recent poor performance?
Rivian is down today for the second consecutive day. Yesterday, it was reported that Amazon (NASDAQ:AMZN) would be partnering with Stellantis (NYSE:STLA) in a collaboration that would focus on vehicle software. It was also reported that Amazon would be Stellantis’ first commercial customer for its Ram Promaster electric van. Shares of Rivian immediately declined after this news was released. However, Amazon’s partnership with Stellantis will not directly affect Rivian’s partnership with the e-commerce giant. Rather, it presents a theme that demonstrates the competitive landscape of the electric vehicle (EV) market.
Ford (NYSE:F) also recently announced that it will nearly double its production of the electric F-150 Lightning pickup truck to 150,000 units, citing strong demand. The F-150 Lightning truck is a direct competitor to Rivian’s R1T model.
As of now, Amazon has preordered 100,000 of Rivian’s electric delivery vans. Rivian will complete the preorder in 2025. On a positive note, Morgan Stanley (NYSE:MS) analyst Adam Jonas believes that figure will balloon to 300,000 by 2025 or 2026.
What Will a Hawkish Fed Mean for Rivian Stock?
While no Rivian specific news can directly explain the stock’s decline today, investors still seem worried about a hawkish Fed. After the minutes from the Dec. 14-15 Federal Open Market Committee (FOMC) were released, investors are now anticipating an increase of 25 basis points to interest rates in March. Unprofitable stocks with long durations, like Rivian, may experience some pain from a rate hike. This is due to future cash flows being discounted at a higher rate, which in turn would lower the present value of the stock.
In terms of profitability, Rivian still has a long way to go. The company reported a Q3 loss of $1.23 billion, which would equate to earnings per share (EPS) of -$12.21. Since Rivian is currently losing money, it can be inferred that a majority of its $76 billion valuation is based on future cash flows. This could impose major problems for Rivian stock in a hawkish Fed environment.
On the date of publication, Eddie Pan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.