The recent performance of Arrival, Lucid and Rivian share prices has raised questions about pure-play electric vehicle companies racking up huge losses. Though the industry is becoming congested with profitable, legacy automakers shifting their focus to electric, there are reasons to be bullish on these three stocks.
The share prices of Arrival [ARVL], Lucid [LCID] and Rivian [RIVN] have been stuck in reverse in 2022 and could soon find themselves under more pressure as competition in the space intensifies.
More and more legacy automakers such as Ford [F], General Motors [GM] and Toyota [TM] are announcing plans to shift away from internal combustion engine vehicles and start producing more electric vehicles (EVs).
Analysts at Credit Suisse, led by the bank’s global chief investment officer Michael Strobaek, have projected that EVs, including plug-in hybrids, will account for 45% of annual car sales by 2030, up from a previous forecast of 34%.
Demand is being and will continue to be “fuelled by an increasing focus on carbon neutrality targets, as well as favourable policies,” particularly the EV tax credit introduced in the US as part of the Inflation Reduction Act.
An overcrowded EV market will mean more competition for pure-play EV companies, so the question facing Arrival, Lucid and Rivian is whether these stocks are well-positioned to stay ahead of the pack.
Arrival makes progress with electric bus
Back in May, German bank Berenberg warned that Arrival was close to running out of cash and that it needed to find alternative sources of credit, according to Autocar. The company’s share price crashed 76% in the first five months of 2022, during which time it was particularly damaged by a sell-off in tech stocks.
The British EV startup is in a race against legacy automakers to commercialise electric buses and vans to market. In August, it recorded a wide quarterly loss and announced it would be pausing spending on its bus project while it worked to raise new funds.
At the end of September, the company revealed that it had produced its first electric van and now aims to start manufacturing units for UPS [UPS], which ordered 10,000 of them in 2020. Bloomberg reported that the EV maker is now hoping to capitalise on demand in the US by raising capital to build micro-factories there.
The Arrival share price received a boost spiked on 30 September on the back of the good news, though it has wavered again since. As of 5 October, the stock has plunged 89% year-to-date to $0.77 and has fallen 23.5% in the past month.
Lucid’s battery technology is key
Like Arrival, Lucid has been burning through cash, spending $823.45m in the three months to the end of June, up from $346.83m spent in the year-ago quarter. Despite ending Q2 2022 with $4.6bn in cash and equivalents, the company slashed its full-year production guidance from between 12,000 and 14,000 units to between 6,000 and 7,000.
Cash burn concerns aside, RF Lafferty initiated its coverage of Lucid in September with a ‘buy’ rating. Analyst Jaime Perez argues that “its battery pack technology is the key differentiator for Lucid providing both driving range and horsepower,” according to a note to clients seen by Barron’s.
Both Lafferty and Perez put a target of $19 on the Lucid share price, which implies an upside of 26.5% from its most recent close. The stock has fallen 60.6% year-to-date to $14.99 as of 5 October.
Rivian’s strong position despite challenges
Unlike Arrival and Lucid, Rivian has a strong balance sheet. The company had $14.9bn in cash and equivalents at the end of June, down from $16.4bn at the end of March. It expects to have enough cash to fund operations until 2025 by which time it hopes to have launched its R2 assembly plant and battery factory in Georgia.
Needham analyst Vikram Bagri initiated coverage of Rivian in September with a ‘hold’ rating, commending the large order for its commercial vehicles and the upcoming launch of a smaller SUV model. However, there are caveats.
“While [Rivian] is in a solid position, we believe the competition will get intense, profitability is still far out, manufacturing challenges remain, and the company will require additional capital in 2024 and beyond,” wrote Bagri in a note seen by Benzinga.
The Rivian share price is down 65% year-to-date through 5 October to $36.13, although it is up 12.6% over the past month.