A day after a less-than-encouraging report, shares of electric vehicle manufacturer Rivian Automotive (NASDAQ:RIVN) moved up over 1% in the afternoon session. According to a Bloomberg report published Monday, Rivian is considering laying off approximately 5% of its 14,000-strong workforce, or around 700 employees. However, RIVN stock is mounting a comeback effort. As well, many other EV stocks have surged this afternoon.
First, it’s important to clarify that management itself has not officially confirmed the Rivian layoffs, a point that the Bloomberg report mentioned. Further, the article states that the company is targeting non-manufacturing jobs, potentially implying that production will go on as scheduled.
As well, the rumored Rivian layoffs are coming at a seminal moment for the EV maker. Per InvestorPlace contributor Bret Kenwell, the company last week reported deliveries for the second quarter. “Rivian produced and delivered more than 4,400 vehicles last quarter, with both figures up significantly from the first quarter. Additionally, the company reaffirmed that it is on track to produce 25,000 vehicles this year.”
Second, Canoo (NASDAQ:GOEV) provided the biggest fireworks among EV stocks, with shares skyrocketing 67% in the afternoon hours. Per InvestorPlace writer William White, Canoo inked a deal with Walmart (NYSE:WMT), which involves the big-box retailer “ordering 4,500 EVs from Canoo with an option to purchase an additional 10,000 units of the company’s Lifestyle Delivery Vehicle (LDV).”
Tough Road Ahead for EV Stocks
Frankly, the positive developments for EV stocks couldn’t have come soon enough. Besides RIVN and GOEV, other sector players unrelated to either of these two developments, such as premium EV maker Lucid Group (NASDAQ:LCID), have gained on Tuesday to varying degrees.
Still, significant obstacles remain for EV stocks. Although the apparent Rivian layoffs might not impede production trajectories, prospective investors will almost surely find RIVN’s loss of 70% year to date distracting. As well, GOEV speculators may be celebrating, but only the ones that bought in after May 9. Against prices before then, GOEV is still in the red. As well, Canoo is down approximately 52% YTD.
Another factor to consider is the bullwhip effect, or the supply chain related consequences associated with overestimating future demand. It’s worth reminding investors that the U.S. Postal Service had the opportunity to go electric to replace its fleet of aging mail carriers but ended up going with the established combustion-powered route.
In other words, excessive wheeling and dealing in the space might benefit EV stocks in the near term. However, such participating enterprises may find that longer-term structural challenges associated with the electric pivot may impede economic effectiveness.
Rivian Layoffs in the Context of Inflation
Although the rumored Rivian layoffs in theory won’t affect the core business, it’s difficult to ignore the potential development amid soaring inflation. With real earnings of wage and salary workers plummeting precipitously since the second quarter of 2020, any sizable job cut is significant.
Ultimately, then, investors must exercise caution with EV stocks. With many technology firms announcing job cuts, the free market is adjusting for a diminishing total addressable market. Clearly, EVs are not immune to this wider trajectory.
On the date of publication, Josh Enomoto 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.