Electric Vehicle Startups May Fall Apart As Quickly As They Came Up

Rivian shares have fallen 75% since its initial public offering last year. In November 2021, Rivian was valued more than Ford and GM, but is now worth about half that. Its appeal as a counterweight to Tesla, highly regarded investors and 12-year production backlog have not been enough to protect its share price from a downturn that plagues nearly every EV company.

In 2021, Rivian produced 1,015 vehicles, falling short of its goal of 1,200. Its pace of production has more than doubled since last year, producing 2,553 vehicles in the first three months of the year, but remains short of what is needed to be profitable and justify its high valuation. The company is already planning to build a second manufacturing plant in Georgia to complement its Illinois plant, where the existing facility expects to produce 200,000 vehicles a year. Rivian, like many automakers, has also increased its prices amid inflation and supply shortages, but has apologized and reversed price increases on existing pre-orders after customer backlash.

The challenges have been even worse for other electric vehicle companies that have gone public in recent years. Faraday Future, Lordstown Motors and Electric Last Mile Solutions share prices are down more than 70% since going public through SPAC, and all have faced SEC investigations.

Sharp price drops in electric vehicle stocks can be typical of booms and busts. New industries that excite investors with the opportunity to ride a financial rocket into the stratospheres of wealth, but some publicly traded companies might not do otherwise in less enthusiastic times. The dot-com bust of 2000 is an oft-cited example.

Although no public company involved in electric vehicles has been convicted of fraud to date, the fraud is in fact typical of stock market bubbles, according to William Quinn, a professor at Britain’s Queen’s Management School who studies stock market bubbles. He pointed to the British bicycle bubble of 1890 when hundreds of new bicycle companies were listed on the stock market at excessive valuations. Almost all of them went bankrupt within a few years.

David Kirsch, a University of Maryland business professor and co-author of the book “Bubbles and Crashes,” said he hopes some electric vehicle startups will survive, but many will fail. “The stories are falling apart,” Kirsch told CNN Business.

US electric vehicle companies are not the only ones seeing their valuations reduced. Chinese electric vehicle startups have also been affected. Nio shares are down 49% this year, while X-Peng is down 52% and BYD is down 17%. Even the world’s most valuable automaker, Tesla, has not been immune; its stock drop is 27% this year.

Kirsch sees the falling share prices of companies wanting to rival Tesla as evidence of how difficult it is to turn startups that inspire investors with a history into companies that prove themselves on paper with income and earnings.

“Some of these companies are exposed in some way,” Kirsch said. “There’s a saying, when the tide goes out, you see who isn’t wearing a bathing suit.”