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Why Rivian Stock Plunged Today

The Motley Fool
The Motley Fool
 2022-01-18

What happened

Shares of Rivian Automotive (NASDAQ: RIVN) fell 8.5% on Tuesday, deepening the electric vehicle ( EV ) maker's descent from its post-IPO highs.

So what

Rivian's stock price is now down nearly 60% from the highs above $179 that it reached shortly after its initial public offering in November. The stock has violently reversed course in recent months, as the initial excitement about Rivian's IPO has worn off.

Additionally, investors have shifted their focus from growth potential to valuation and risk management, as inflation rears its ugly head once again.

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Image source: Getty Images.

In an attempt to rein in a broad scale rise in consumer prices, the Federal Reserve has signaled its intent to raise interest rates in the coming year. That's sent the yield on the 10-year Treasury to two-year highs. With bond yields becoming more attractive, investors have sold off relatively riskier growth stocks.

Meanwhile, many investors who wanted to maintain their exposure to the stock market have shunned high-priced growth stocks -- whose future earnings are deemed less valuable as interest rates rise -- and rotated into lower-priced value stocks.

Now what

With nearly all of Rivian's value tied to the future production of its R1T pickup trucks, R1S sport utility vehicles, and EDV commercial vans, the EV upstart is particularly exposed to interest rate-fueled rotations out of growth stocks.

Moreover, even after its recent plunge, the automaker isn't cheap by traditional valuation standards. Rivian still sports a $65 billion market cap, which places it between that of industry giants Honda Motor and General Motors , despite delivering a total of only about 1,000 vehicles so far.

Suffice it to say, shareholders are paying a steep price for Rivian's future growth. And judging by its recent stock price swoon, some investors are beginning to balk at the price tag of the young EV company's shares.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

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