Shares of Rivian Automotive (RIVN -0.68%) soared nearly 11% yesterday on news of a new partnership. But investors seem to be rethinking that initial reaction, and the stock dropped as much as 4.5% this morning. As of 11:50 a.m. ET, the stock had recovered some of that drop but remained down 0.6%.
Two things may be taking over investors’ thinking today. First, Rivian already has a market cap of nearly $34 billion. That valuation is despite the fact that the company generated less than $500 million in revenue in the first half of 2022. Immediately assigning more than $3 billion in valuation from yesterday’s announcement seems excessive. Additionally, plans for the new partnership with the Mercedes-Benz Van division of Daimler AG won’t see vehicles being produced for several more years.
The new joint venture to manufacture electric vans will utilize existing Mercedes-Benz assets in Europe and will be based on two different vehicle platforms — the electric-only platform of Mercedes-Benz Vans and the Rivian Light Van platform. Rivian is already producing electric delivery vehicles in the U.S. as part of a 100,000 vehicle order from Amazon, with deliveries spread out through 2030.
While the planned joint venture is positive news for Rivian, the company has more pressing needs in the short term. It has throttled back production projections for 2022 as it struggles to obtain needed parts. It also burned through more than $1.5 billion in cash in the second quarter alone as the company has to shoulder higher raw material costs before price increases on its vehicles kick in.
Yesterday’s price jump was a bit of an overreaction, and some investors are taking profits from that spike today.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Howard Smith has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.