Rivian’s Wounded Shorts Set for Potential Squeeze

2023-08-09 01:45

Investors betting against Rivian Automotive Inc. have a lot riding on the electric vehicle maker’s results later Tuesday,

Rivian’s Wounded Shorts Set for Potential Squeeze

Investors betting against Rivian Automotive Inc. have a lot riding on the electric vehicle maker’s results later Tuesday, after a steep rally exposed them to big losses.

Short interest has risen to 13% of the shares available for trading — representing about $2.2 billion worth of stock, according to data from S3 Partners LLC. Rivian’s 32% advance this year has cost the shorts more than $736 million in mark-to-market losses as of Monday’s close, S3 said. After Tesla Inc., it’s the biggest short position among US electric-vehicle firms.

“Rivian shorts are getting more squeezable,” S3’s Ihor Dusaniwsky said in an interview. “Losses are what trigger a squeeze, and Rivian shorts have been losing money over the last month.” If Rivian manages to impress the market on Tuesday, Dusaniwsky expects the short covering to continue.

The company’s progress toward generating a profit will be the biggest focus when it reports. While quarterly gross margin for the EV startup is expected to remain negative until the first quarter of 2024, any signs of improvement in profitability will go a long way to allay concerns about the viability of its business.

Sentiment has improved this year, with fears of an economic slowdown fading and Rivian showing signs of finally hitting its stride. Its shares are up more than 100% from the record low touched in April through Monday’s close. The gains have been driven by strong production numbers for the second quarter, a key delivery milestone, and a reiteration of the company’s plan to build 50,000 electric vehicles this year.

“Rivian shares currently reflect a very positive view of Tuesday’s results,” Greg Martin, managing director of Rainmaker Securities LLC said in an interview, noting that “the company has insinuated an improvement in capacity in recent comments.” However, he warns that “any deviation from that could tank the stock, which already trades at a very high multiple.”

Rivian shares were trading up 1.8% at $24.71 as of 1:20 p.m. in New York Tuesday, ahead of the results postmarket.

Recent gains are no match to the significant rout in Rivian’s valuation since it became a public company in late 2021. It remains one of the biggest initial public offerings on US exchanges, after raising almost $12 billion. However, after touching a record high within days of the IPO, the stock has been on a broadly downward trajectory, and is still 86% below its all-time high of November 2021.

While any good news coming out of the results is potentially already reflected in the stock price, some see further room for optimism. Peer Lucid Group Inc. jumped as much as 6.7% after it reiterated its full-year production outlook, despite second-quarter revenue missing the average analyst estimate.

“Short interest is common for battleground stocks and it can work in your favor if your thesis is right because all those shorts will need to cover,” Ivana Delevska, chief investment officer at SPEAR Invest, said in an interview. “Increasing short interest into earnings means that expectations are low and creates a favorable set-up.”

Tech Chart of the Day

Shares in Apple Inc. fluctuated between small gains and losses Tuesday. If they end lower, Apple will extend its losing streak to a sixth day, the longest since January 2022. The latest weakness has come after the technology giant reported its third straight quarter of declining sales and predicted a similar performance in the current period.