After driving higher on Monday and Tuesday, Rivian Automotive (RIVN 24.45%) stock is headed in the other direction today. For a couple of reasons, it seems that electric vehicle (EV) peer Tesla (TSLA 8.22%) is the factor contributing to Rivian's sell-off today. Besides Tesla's disappointing earnings report, investors are reacting to news regarding litigation between the two companies.
As of 11:02 a.m. ET, shares of Rivian are down 5.6%, recovering slightly from their earlier decline of 8.3%.
A court case can proceed, and Tesla's profits slide
The first red flag that investors recognized today was news that a judge, in a tentative order, had denied Rivian's motion to dismiss a lawsuit that began in 2020, in which Tesla alleges that Rivian incited former Tesla employees to steal secret information. Santa Clara County Superior Court Judge Theodore C. Zayner will hold a hearing today before issuing a final order with regard to the trial proceeding. Investors are likely fearful that should Rivian lose the lawsuit it would be required to pay a hefty sum in damages, possibly imperiling the unprofitable company.
Further rattling Rivian's investors' nerves today is news of Tesla's second-quarter 2024 financial results. While the company beat analysts' top-line estimates, Tesla reported adjusted earnings per share of $0.52, failing to meet analysts' expectations of $0.62. Another source of concern was Tesla's slimmer margins, which the company partially attributed to lower vehicle deliveries. In addition to its operating margin contracting 333 basis points year over year, Tesla's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin shrank 426 basis points on a year-over-year basis. Rivian investors are surely recognizing this performance as an inauspicious sign, suggesting that Rivian's own drive toward profitability could be hampered from lower EV demand.
Is Rivian stock a sell on this news?
Despite the disconcerting news coming from two fronts, those with their eyes on Rivian shouldn't immediately dismiss a potential investment. Instead, they should tune in on Aug. 6, when the company is scheduled to report its own Q2 2024 financial results to gain greater insight into the company's situation.
