So far this month, Rivian Automotive (NASDAQ:RIVN) shares have continued to hit new all-time lows. However, I’ll admit that a move to higher prices may be in the immediate future for Rivian stock.
Mostly, because the ingredients are in place for shares in this fledgling EV upstart to experience a short-squeeze. Yet while the possibility of a short squeeze could serve as a warning to anyone looking to join the crowded short side by making a bearish RIVN wager, it’s not exactly a sign that now’s the time to “buy the dip,” and enter a long-term long position.
Key factors driving Rivian into the stock market junkyard in the first place continue to persist. This indicates that shares will hit even lower lows from here.
Rivian Stock and its Recent Squeeze Appeal
I don’t have to tell you that electric vehicle stocks have fallen out of favor with both main street and Wall Street investors. Because of headwinds like weak demand growth and falling profit margins related to competition, high and low-quality EV stocks alike remain under pressure.
Even so, that may not stop Rivian stock from bouncing back again pretty soon. At least, that’s the view of UBS’s Joe Spak, who last week upgraded RIVN from “sell” to “hold,” and gave it a $9 per share price target.
In Spak’s view any sort of positive news, like updates on Rivian’s planned R2 line of lower-priced vehicle models, will squeeze RIVN higher.
It’s tough to disagree with the analyst’s recent take. Again, the short side with Rivian is very crowded. Around 18.5% of Rivian’s outstanding float has been sold short. Moreover, the company may be weeks away from unveiling promising R2 updates.
Rivan next reports earnings post-market on May 7. So, this sounds like a possible winning trade in the making, right? Not quite. Before deciding to fade the RIVN skeptics, by going long ahead of earnings, keep the following in mind.
A Risky Wager, in Both the Short and Long-Term
It’s possible that upbeat guidance/updates causes Rivian stock to surge after May 7. Then again, maybe not. RIVN could still sink after this upcoming earnings release. How so? For one, consider the current sentiment about EV stocks.
In today’s environment, even Tesla (NASDAQ:TSLA) is getting the market’s cold shoulder. The “Magnificent Seven” has become the “Magnificent Six,” and it’s clear who didn’t make the cut.
Without a market less willing to focus on future potential rather than current headwinds, investors in turn could focus more on the negative aspects of the earnings release.
For instance, the company’s profitability, or lack thereof. Previously, I pointed out how Rivian has assuaged cash burn worries by implementing cost-saving measures. However, even with these cuts, according to a forecast from Evercore ISI’s Chris McNally, total cash burn through 2025 may come in at around $4.5 billion.
The latest earnings/outlook may end up suggesting that cash burn will exceed this figure. Shares could, in turn fall, ahead of an increased likelihood of additional shareholder dilution. Speaking of dilution risk, this remains a key factor why RIVN could keep on dropping over a longer time frame.
Bottom Line: No Matter Your Rationale, Steer Clear of Rivian Stock
Lower-than-expected EV adoption has been a massive reason behind RIVN’s epic price decline since debuting at $78 per share back in late 2021. However, just as large of a factor has been Rivian’s heavy cash burn, which has resulted in the company selling newly issued shares and shareholder dilution.
Rivian had around $9.4 billion in cash on hand as of Dec. 31, 2023, yet this may not be enough to sustain the company until it reaches profitability. Remember that the R2 catalyst may not have an impact until 2026.
With this, Rivian is also at risk of spiraling to even lower prices, because of dilution, delay, and disappointment, much like the situation with Lucid Group (NASDAQ:LCID), although to a less-severe extent.
No matter whether you’re considering Rivian stock as a short-term squeeze trade, or as a long-term bottom-fisher’s buy, staying away is the better choice.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.