Why Rivian Stock Plunged 21% in September

What goes up must come down. Rivian Automotive (NASDAQ: RIVN) stock's jaw-dropping rally in the three months through July appeared unsustainable, and that's what investors are witnessing now. The electric vehicle (EV) stock has slumped by double-digit percentages for two straight months now. After losing nearly 14% of its value in August, shares of Rivian have crashed another 20.6% in September, according to data provided by S&P Global Market Intelligence.

Unfortunately, Rivian's latest announcement is driving its stock further down this month; and there's a chance it may head even lower before bottoming out.

Rivian's production woes continue

Until the beginning of August, Rivian was confident it would ramp up production through the rest of the year and produce 57,000 vehicles in 2024 despite a planned downtime hitting production in the second quarter. Rivian was also confident about hitting a positive gross profit in the fourth quarter despite negative profits in Q2.

But there was a problem though that investors didn't pay much heed to. Rivian was facing a shortage of parts, and the company even temporarily suspended production of its electric delivery vans (EDVs) for e-commerce leader Amazon some weeks ago.

The problem has worsened -- Rivian just slashed its full-year production guidance to only 47,000 to 49,000 vehicles, citing a "production disruption due to a shortage of a shared component on the R1 and RCV platforms." Rivian produces R1S SUV and R1T pickup trucks on its flagship R1 platform, and EDVs on its RCV platform. The development has hit Rivian stock hard.

Rivian stock could remain under pressure

Although Rivian still expects to deliver between 50,500 and 52,000 vehicles this year, a modest gross profit by Q4 looks uncertain now. Parts and components in shortage could become costlier to procure even as Rivian will have to spread its fixed costs over fewer units produced. These are just some of the factors that could hurt Rivian's profits.

Meanwhile, Rivian is preparing to launch a midsize SUV R2 and a midsize crossover R3 in the foreseeable future, with R2 production expected to start in 2026. These will require billions of dollars in investment. Rivian has the backing of Volkswagen, but at least one analyst believes the EV maker will still have to shell out more money.

Last month, Morgan Stanley analyst Adam Jonas slashed Rivian stock's price target from $16 per share to $13 a share, citing the company's limited ability to "drive competitive compute progress in a financially prudent way." Simply put, Jonas expects Rivian's capital expenditures to be higher than forecast.

With Rivian also struggling to boost production, the stock will need a solid catalyst to rebound. The only one I see in the near term is a positive gross profit in Q4, but that's uncertain for now.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Volkswagen. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.