Elon Musk Says Rivian and Lucid are Heading Toward Bankruptcy — Could He Be Right?

Mandatory Credit: Photo by Action Press/Shutterstock (12276248n)Armin Laschet (l), CDU Federal Chairman and Prime Minister of North Rhine-Westphalia and Elon Musk, Tesla head, speak to journalists before the later main entrance to Tesla Gigafactory.
Action Press/Shutterstock / Action Press/Shutterstock

Tesla CEO Elon Musk threw some shade at Rivian and Lucid Motors, telling Tesla Owners of Silicon Valley at Gigafactory Texas that the rival electric vehicles (EV) companies will go bankrupt “unless something changes significantly.”

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His comments come at a time when shares of Tesla have been struggling — notably since the announcement of his $44 billion Twitter deal. In addition, some analysts are also noting that Bitcoin’s sharp decline might spell trouble for the EV company, as it owns a lot of it.

Musk said of his EV rivals on a video posted to Twitter, “The only car companies in the U.S. that haven’t gone bankrupt are Tesla and Ford. Unless something changes significantly with Rivian and Lucid, they will both go bankrupt. I hope they are able to do something, but unless they cut their costs dramatically they are in deep trouble.”

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But Tesla has troubles of its own. The company has had to deal with China’s zero COVID policy, which caused shutdowns in Shanghai. Earlier this week, Musk attributed Tesla’s challenges to supply chain issues, and wrote in a leaked email, “This has been a very tough quarter, primarily due to supply chain and production challenges in China. So we need to rally hard to recover!” as GOBankingRates reported.

And now, Tesla might face additional issues due to the amount of Bitcoin the EV company holds. In 2021, Tesla bought $1.5 billion in Bitcoin. Bitcoin’s price is around $21,650 on June 15, down around 69% from its Nov. 10, 2021 all-time-high of $69,044, according to CoinGecko.

As Barron’s notes, the decline means that Tesla will likely have to recognize a significant loss from its Bitcoin holdings in its second-quarter earnings report. When Tesla bought the crypto, it was north of $30,000 according to Barron’s, which adds that after a few gains and losses, Tesla’s carrying value on the roughly 42,000 coins held was about $1.26 billion at the end of the first quarter of 2022.

For the second quarter of 2022, Tesla likely will have a pretax loss of about $360 million based on where Bitcoin is trading today.

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“Investors should see it as a one-time charge and Bitcoin probably won’t make or break second-quarter results. That is a guess though. How investors react to any one-time charge can’t really be known in advance,” according to Barron’s.

Shares of Tesla are down 43% year-to-date, but are up about 3% so far on June 15. As for Rivian, it holds about $17 billion in cash, cash equivalents, and restricted cash as of March 31, 2022.

Howard Smith, contributing analyst at The Motley Fool, told GOBankingRates earlier in June that in a growing field of competition among EV makers, Rivian stands out for several reasons, as one of its early backers was Amazon, which also has given Rivian an added base load of up to 100,000 electric delivery vehicles (EDVs) on its order books.

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“For investors, the question is valuation. The company has a market cap of about $28 billion, and there are near-term headwinds that include supply chain challenges and increasing input costs,” Smith said. “So there is already solid execution built into the stock price. But the company has the pieces in place for long-term success if it can navigate the short-term challenges. There’s no guarantee that it will, but for investors wanting exposure to the EV sector with a long-term time horizon, Rivian looks to be a solid option right now.”

Wedbush Securities analyst Dan Ives also has an Outperform rating on the stock, despite some earlier skepticism.

“Rivian has been a train wreck since its IPO and an overall black eye for the EV industry,” he told GOBankingRates. Ives said that while the past quarter was not without issues for the EV manufacturer, it does finally appear that Rivian is on the right track, showing strong demand and a supply chain that should produce 25,000 deliveries this year.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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