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Why Rivian, Lucid, and Nikola Stocks Tanked Today

What happened

Growth and technology stocks are leading the market lower today, but early-stage electric vehicle (EV) stocks are tanking even more. The Nasdaq Composite Index moved down by more than 1.2% as of 2:55 p.m. ET, but EV start-ups Rivian Automotive (RIVN -4.22%), Lucid Group (LCID -7.78%), and Nikola (NKLA -9.02%) were faring much worse. At that time, Rivian, Lucid, and Nikola had dropped 4.6%, 8.6%, and 9%, respectively. 

So what

These three stocks are all down between 59% and 67% year to date. There are some company- and business-specific reasons for this, but today’s move has more to do with the macro environment. Yesterday brought a double dose of news that didn’t do anything to make investors want to jump into these high-risk, speculative names.

Vladimir Putin ramped up his aggressive war talk, while in the U.S. the Federal Reserve decided on a third-straight 75-basis-point interest rate hike. Other countries around the world followed overnight, making the environment for start-up companies like these EV makers even more precarious. 

Now what

A rising interest rate environment is a kind of double whammy for speculative, unprofitable stocks. First, raising capital will be that much more expensive down the road. Each of these names will likely need further injections in the not-too-distant future.

The other associated headwind could be the overall global economy. Rate hikes are being implemented to try to stem inflation and slow down growth, at a time when these EV companies are in the midst of trying to ramp up production and sales.

As for raising additional money, Lucid has already filed an offering document saying it plans to raise up to another $8 billion over the next three years. Rivian ended the second quarter with $15.5 billion in cash, cash equivalents, and restricted cash. But the company said due to rising costs and other headwinds, it is revising its estimate for full-year adjusted EBITDA of -$5.5 billion and is cutting back its capital expenditure plans to shore up cash.

Rivian’s cash hoard is only expected to get it to the launch of its second manufacturing facility in 2025. Nikola also pushed investors to allow it to expand its share count, as it foresees needing more funds to keep its electric semi truck business growing.

None of these businesses are in any immediate danger of failure. All are bringing in meaningful revenue and ramping up production. Nikola just began taking orders for its battery electric heavy trucks in Europe and unveiled its fuel cell electric vehicle (FCEV) beta testing version there. But with the cost of raising future capital rising, as well as uncertain economic conditions globally, investors just don’t want to be in this type of stock right now. 

Howard Smith has positions in Lucid Group, Inc. and Nikola Corporation. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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