American automaker Ford Motor Co. (NYSE: F) is about to sell eight million shares of electric vehicle (EV) start-up Rivian Automotive (RIVN) as soon as its insider lockup period ends on Sunday, May 8.
At the time of writing, shares of Ford were down 1.4% and RIVN stock was trading down more than 7% on the news during pre-market trading.
Ford to Off-Load Rivian Shares
As per a CNBC article, sources confirmed that Ford is set to sell eight million Rivian shares after its IPO lockup period ended on Sunday with the help of Goldman Sachs (GS). Currently, Ford owns around 102 million shares of RIVN.
In late January, Ford disclosed that it would record a one-time equity gain from Rivian investment of $8.2 billion in its Q4 FY21 results.
After basking in the glory of Rivian’s uptick in share prices, which boosted its bottom line last year, the plunge in RIVN stock to date is probably making the automaker rethink its investment decision.
Remarkably, in Ford’s Q1FY22 results, the automaker reported a mark-to-market loss of $5.4 billion from its 12% stake in Rivian, piling on its net losses.
Following Ford, even technology giant Amazon (AMZN) reported a huge Q1FY22 loss due to a $7.6 billion decline in its Rivian investment value.
Additionally, banking giant JPMorgan Chase (JPM) will also sell a chunk of around 13 million to 15 million of RIVN stock to an anonymous seller at $26.90 per share, the article stated.
Why Has Rivian Lost its Sheen?
With its initial public offering in the last quarter of 2021, Rivian was hailed as one of the toughest competitors for EV giant Tesla (TSLA).
However, its larger-than-feared Q4 loss and dimming outlook for 2022 shook off investors’ confidence. The EV maker’s projections were dragged down by chip shortages and supply chain woes for the three most important metals required in the EV industry, which are lithium, nickel, and cobalt. Moreover, the rising cost of raw materials has also forced automakers to hike the prices of their vehicles.
Notably, Rivian had to halve its ambitious production capacity outlook for 2022 to 25,000 electric trucks and sports utility EVs. RIVN stock has lost a whopping 72% year-to-date.
Wall Street’s Take
Analysts on the Street are cautiously optimistic about Ford stock with a Moderate Buy consensus rating based on eight Buys, seven Holds, and two Sells. The average Ford price forecast of $20.75 implies 46% upside potential to current levels. Meanwhile, F stock is down almost 34% year-to-date.
Conclusion
The automotive space is understandably under a lot of duress due to supply chain, labor, and inflationary issues. Ford’s decision to flee another automaker’s stock has put things in perspective.
Ford, however, is one of the oldest players in the market with a large moat and competitive advantage. The temporary headwinds may put investors away from the sector, but the long-term perspective of the auto industry is very bright, particularly with the EV shift.
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