Rivian out of the Nasdaq 100! Will Rivian share price drop?

Rivian share price dropped 2% in premarket trading on Jun 15, 2023 and ended the previous session 3% lower as the EV maker is set to be booted out of the benchmark technology index - Nasdaq 100.

The Nasdaq 100 is an amalgamation of the top 100 non-financial stocks listed on the Nasdaq stock exchange. Rivian is being replaced by ON Semiconductor stock, effective June 20.

Rivian share price: Historical Performance

(Data as on June 14, 2023)

Rivian Nasdaq rebalance: What led Rivian to be booted out of the Nasdaq 100?

Stock indexes have stringent norms which decide which stocks will remain within the index and which needs to be eliminated. Factors such as market capitalization, revenue and profitability metrics, management changes are taken into consideration by exchanges while rebalancing their portfolio. 

Criteria for being included in the index are mainly based on market capitalization, although there are some other considerations such as trading volumes.

According to data from Refinitiv, Rivian’s market capitalization has dropped more than 60% from early 2022 to about $14 billion. ON Semiconductor’s market capitalization has surged about 50% during the same time frame. 

Rivian share price: Why are share prices falling?

Rivian historically has been facing production problems. The EV maker has enjoyed a steady demand for its vehicles but due to lack of production capacity, fails to meet demand. 

Production

Rivian missed its manufacturing target for 2022 and forecast 2023 production well below analysts' estimates during the quarter ended December amid supply chain bottlenecks and the recall of over 12000 vehicles. 

Demand

Over the years, there have been multiple entrants into the EV space and there is a tight competition among them to garner buyer attention. Lucid, Rivian, Tesla, BYD, Xpeng are few of the many EV makers who are functioning in the country wherein fossil fuel based vehicles still dominate the car scene. 

Capital:

Capital has been an issue ever since the US central bank began its interest rate hike frenzy since the beginning of 2022. Capital intensive businesses like the manufacturing industry faced the brunt of high interest rates for raising working capital. 

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.