2022 has been anything but friendly to Rivian (NASDAQ:RIVN). Today, shares of RIVN stock hit a 52-week low at $55.10 before quickly rebounding higher. Other electric vehicle (EV) names are in the red as well, such as Tesla (NASDAQ:TSLA), Nio (NYSE:NIO) and Lucid (NASDAQ:LCID). After today’s drop, Rivian now has a market capitalization of $56 billion. For context, Rivian’s debuted on the public markets at $78 per share, which implied a $77 billion market cap. Rivian’s initial public offering (IPO) was the largest of 2021 and the 12th largest of all time.
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Why Is RIVN Stock Down Today?
The current market environment suggests that investors are fleeing long-duration stocks in favor of profitable companies that already generate cash flow. Since Rivian is still highly unprofitable, this theme can help explain the EV maker’s recent price action. During Q3, Rivian reported $1 million in sales on top of a $1.23 billion loss. It’s safe to say that Rivian will remain unprofitable, at least in the short term.
Furthermore, Rivian’s rising competition with early backer Ford (NYSE:F) may be adding to the decline. Ford recently announced that it would be nearly doubling its planned production of the F-150 Lightning truck to 150,000 vehicles per year by mid-2023. The production increase was implemented because Ford had received over 200,000 reservations for the F-150 Lightning. The F-150 Lightning truck will compete directly with Rivian’s R1T truck.
FOMC Meeting to Begin Tomorrow
In addition, the Fed will start its two-day Federal Open Market Committee (FOMC) meeting tomorrow. At the meeting, investors will be anxiously awaiting an update on the Fed’s monetary policy plan. As of now, investors are anticipating the first interest rate hike to begin in March. When interest rates rise, the future value of the dollar is lower when discounted to the present value, or today. This phenomenon affects all stocks, and Rivian is no exception. However, since a majority of Rivian’s market cap is based on future cash flows, the EV maker is especially susceptible to rate hikes.
The Fed has also started tapering asset purchases, which will reduce general liquidity in the market. Finally, analysts at Goldman Sachs (NYSE:GS) currently expect four rate hikes in 2022. Nevertheless, the investment bank states that the threat of inflation could possibly trigger more hikes.
On the date of publication, Eddie Pan did not hold (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.
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