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Ford Deal Back-Out Isn’t the End of the Road for Rivian

Is seems like there’s a constant influx of new electric vehicle (EV) start-ups, doesn’t it? Among the most interesting contenders is Rivian Automotive (NASDAQ:RIVN),…

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Is seems like there’s a constant influx of new electric vehicle (EV) start-ups, doesn’t it? Among the most interesting contenders is Rivian Automotive (NASDAQ:RIVN), and there’s no shortage of buzz on social media about RIVN stock lately.

Source: Miro Vrlik Photography / Shutterstock.com

In case you didn’t get the memo, Rivian specializes in big vehicles, especially trucks and SUVs. There’s a no-cruelty focus here, as the interiors of Rivian’s vehicles are made from 100% animal-free materials.

That’s not the only feature that sets the audacious automaker apart. Specifically, Rivian’s battery packs are designed to be easily removed from the vehicles, and can either be recycled or used in “second-life” applications such as stationary storage.

A collaboration with an automotive-industry icon also provides a unique advantage to Rivian – yet, this appears to be partnership in flux, and possibly in a state of dissolution. It’s something for prospective investors to consider, though it actually might not be a deal breaker.

A Closer Look at RIVN Stock

RIVN stock started off with a winning streak, rising for five consecutive trading days after Rivian’s initial public offering (IPO).

That’s a great start, though as the old saying goes, stocks don’t just grow straight to the heavens. In other words, no stock is destined to go up without any retracements.

This harsh lesson was learned on Nov. 17, when RIVN stock tumbled by as much as 18% in a single trading session.

Even on that day, however, the share price was still comparatively high as it settled into the $140s. Bear in mind, the Rivian IPO was priced at $78.

The chatter surrounding RIVN stock has been bearish lately, as the share price pulled back to $118 in the days leading up to Thanksgiving.

Cautious traders might choose to wait for the selling pressure to subside before taking a position.

If your long-term view on Rivian is still optimistic, though, then it could be fine to pick up a few shares at the current price.

An Alliance Is Formed

It’s typically a good thing when a newer start-up has a big-money backer. This is especially true when that backer is an iconic business with extensive resources.

Thus, it was certainly a positive development when Ford (NYSE:F) took a 14.4% stake in Rivian.

Sure, Rivian has other big-name backers. These include Amazon (NASDAQ:AMZN) with a 22.4% stake, and T.Rowe Price (NASDAQ:TROW) with 18.8%.

But of course, there’s something special about the connection between Ford and Rivian. After all, they’re in the same industry, and have similar visions of producing clean-energy vehicles.

Heck, there was even an agreement between the two automakers that extended far beyond taking a stake in Rivian’s shares.

Reportedly, in 2019 the two companies planned to work together to create an “all-new, next-generation battery electric vehicle” using Rivian’s development platform.

High Hopes, Harsh Reality

At that time, there was no reason to believe that this collaboration would fall apart.

“As we continue in our transformation of Ford with new forms of intelligent vehicles and propulsion, this partnership with Rivian brings a fresh approach to both,” former Ford CEO Jim Hackett assured.

A funny thing can happen when companies change their CEOs, though. Priorities can change, and partnerships formed under previous CEOs can fall through.

With current CEO James Farley at the helm, Ford has strongly focused on its own line of EVs.

So, perhaps a break in relations was inevitable.

“We respect Rivian and have had extensive exploratory discussions with them, however, both sides have agreed not to pursue any kind of joint vehicle development or platform sharing,” Ford revealed not long ago.

The ties between the two companies isn’t completely broken, though. Ford is still a major investor in Rivian.

Furthermore, Rivian took in billions of dollars in proceeds from the IPO. That, undoubtedly, will help the company stay afloat as Rivian develops and markets its tough but eco-friendly EVs.

The Bottom Line

The loosening of ties between Rivian and Ford may be a tough pill for some investors to swallow.

Still, Ford still has a stake in Rivian. Plus, there are other big-name backers in the mix.

So, RIVN stock isn’t dead in the water. Setbacks are part of the business world, and sometimes they provide opportunities for audacious EV-market investors.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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Author: David Moadel

Economics

To address climate change, we need to address social inequality

Two of the largest challenges society faces today – climate change and social inequality – can benefit from a joint approach, particularly as investors…

Two of the largest challenges society faces today – climate change and social inequality – can benefit from a joint approach, particularly as investors may have to navigate enhanced regulation in both areas, says Alex Bernhardt, global head of sustainability research.

Climate change and inequality related to gender, race/ethnicity, age and ability are inextricably linked. Globalisation has acted to change the dynamics of both climate change and social inequality.

Over the past roughly 40 years, the latest phase of globalisation has acted generally to increase inequality – as measured by wealth and income metrics – globally and within many nations. Alongside this social impact, increasingly globalised trade has driven up carbon emissions, deforestation and the exploitation of resources, all of which are steady contributors to the severity of climate change.

In turn, the tangible effects of climate change have exacerbated inequalities due to their disproportionate impact on disadvantaged, vulnerable groups. This has created a negative feedback loop in which the poorest portions of the population are being excluded from economic growth and left without the financial resources to navigate the growing climate crisis (see Exhibit 1).

Joined-up responses

In response to climate change, governments around the world have examined a host of mechanisms to reduce emissions, with varying effects on vulnerable social groups.

One prominent example, putting a price on carbon, is viewed by many economists as one of the most effective means of cutting emissions. However, when not properly implemented, carbon-pricing schemes can have negative repercussions on low-income families/individuals and may face strong opposition as was the case with the ‘gilets jaunes’ in France. More broadly, some see dwindling political support for carbon taxes in key jurisdictions.

An alternative could be a carbon ‘fee and dividend’ policy such as proposed under the US Energy Innovation and Carbon Dividend Act. This mandates a gradually rising carbon fee on fossil fuel emissions with carbon dividends or rebates circulated to households. Such an approach would go some way to addressing the regressive nature of more blunt carbon tax instruments.

Policies to address social inequalities can also be one of the most effective ways to reduce emissions.

For example, Project Drawdown, a non-profit organisation, ranks climate solutions by their effectiveness. It suggests initiatives targeting women’s health and the education of girls can be some of the most effective emissions reduction strategies available to reach 2050 climate targets as they have the effect of slowing population growth (a key emissions driver), while improving family resilience to climate change.

These interventions also produce many ‘co-benefits’ which are not directly climate-related including improved health and lower incidences of disease and maternal and child mortality.

For all the above reasons, we believe climate justice – including a just transition to a low carbon economy – is not only desirable, but also necessary.

A social Inevitable Policy Response?

BNP Paribas Asset Management supports the Inevitable Policy Response (IPR) initiative, which postulates that markets have not yet priced in (an inevitable) forceful policy response to climate change.[1]

The IPR initiative is premised on the idea that governments will be forced to act more decisively to address climate change than they have done so far, exposing investor portfolios to significant risk. The longer this policy response is delayed, the more abrupt, disorderly, and disruptive it will be.

While IPR’s scenarios seek to forecast climate policies with a just transition lens, it’s plausible that a concurrent social Inevitable Policy Response could emerge given the historically high level of inequality in markets such as the US where the income and wealth gap between the country’s richest and poorest has risen sharply since the 1980s.

Inequality can only increase so much before policy change occurs – due to pressure at the ballot box or by means that are more dramatic. Analysis from academics at Otto-Friedrich-Universität Bamberg, Germany and Australian National University’s Centre for Applied Macroeconomic Analysis counts income inequality as a direct factor in political polarisation. This effect is seen most clearly in the deterioration in the economic position of the poorest fractions of the population.

A balanced approach

Many climate policies have been designed with an environment-first approach. However, it seems increasingly likely that policy change may be spurred by rising social pressure.

In part, this is due to the tangible nature of social inequality, which can be felt more pervasively than the disparate and acute impacts of extreme weather and climate disasters. The Covid-19 pandemic, which has exacerbated and laid bare the unequal effects experienced by disadvantaged groups, will also play a significant role.

For these reasons, it may be wise for those looking to spur climate action to hitch their wagon to social movements looking to address inequality. Nonetheless, not all policies designed to relieve social inequality will have a positive effect on climate mitigation.

For example, increasing minimum wages may alleviate income equality for workers, but it may also increase consumption, waste and emissions as a result of individuals having more disposable income.

We believe this is not a reason to abandon efforts to raise minimum wages; to the contrary, such policies may be essential to address wage stagnation and inequality. Instead, minimum wage increases could be coupled with environmental policies to reduce the potential negative environmental impacts of increased consumption such as carbon pricing.

Work to do for policymakers and investors

Overall, policymakers should seek to coordinate policies to address both environmental and social issues simultaneously as they are simply too interconnected and urgent to address separately.

In their engagement[2] and investment strategies, investors may wish to consider both climate and social regulation that is not yet reflected in today’s markets.

In addition to managing regulatory risk, investors may want to target investments in companies contributing to or responsibly addressing the transition to a low carbon economy via their stakeholders.


[1] The Inevitable Policy Response aims to prepare institutional investors for the portfolio risks and opportunities associated with a forecast acceleration of policy responses to climate change. The IPR contends that governments will be forced to act more decisively than they have to date, exposing financial portfolios to significant transition risk. See No more decades for dithering: It is crunch time to push climate policy – Investors’ Corner (bnpparibas-am.com)

[2] BNP Paribas Asset Management regards active stewardship as an essential part of its role as a ‘Future Maker’ and a sustainable asset manager for a changing world, engaging with companies on issues ranging from environmental degradation and social inequality to opaque governance. See Sustainability – Investors must be stewards – Investors’ Corner (bnpparibas-am.com)


Writen by Alex Bernhardt. The post To address climate change, we need to address social inequality appeared first on Investors’ Corner – The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.



Author: Alex Bernhardt

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Economics

Dip-Buyers Beware Ahead Of The Fed

Dip-Buyers Beware Ahead Of The Fed

This week has seen carnage at the surface and below the index level in US equity markets, capped off by…

Dip-Buyers Beware Ahead Of The Fed

This week has seen carnage at the surface and below the index level in US equity markets, capped off by the chaos around the open today and the start of a $3.1 trillion options expiration, that we have detailed previously.

An ugly week…

And a chaotic open…

However, what really matters is what happens next? Is it time to buy-the-f**king-dip? Or is Fed fear too much to overcome in the short-term?

First things first, in order to judge what happens next, we need some color on WTF happened yesterday as markets puked with barely a bid. Nomura’s Charlie McElligott lays out exactly how things happened…

  • The PTON shock headline was important to “get the ball rolling”—it had been a “Growth Darling” on the public equities side (+498% from 2019 IPO into early 2021 highs), and for many funds, was once a private-side holding–which optically and sentiment-wise VERY MUCH MATTERS right now, as those “unicorn” books are finally getting an MTM “come to jesus” which is crushing performance now for many funds, instead of previously carrying it—so there was fear of cascade into other “legacy” growth names with stupid valuations

  • So shortly thereafter (about 15-20 minutes), when the critical 100dma in ES of 4570 I mentioned in the morning note couldn’t hold, that was first “ruh roh”…bc up to that point, the Dealer Delta covering HAD been a rocket ship

  • At this point, our internal Equities Futures “pressure” / imbalance monitors began showing that same heavy ongoing “vwap-style” de-risking seen in prior days, hitting bids, particularly in ‘large lots’—meaning big institutional / asset-manager –type size

  • We then saw some really really big cash “sell” baskets which started going off at 2:30pm and escalated into the close, with TICK (proxy for large notional “program” flows from customers across single-name equities) hitting -1850 a few times in waves, and actually printed -1875 at the peak, which is largest “downtick over uptick” impulse across NYSE Equities since 9/20/21

  • From there, the kill-shot from the FLOW-perspective was when we began approaching the CTA “sell trigger” in S&P at 4507 I wrote about in the morning, when stating that it “had to hold”…..i had about 50 bberg chats pop-up once we moved down below 4520, as Traders were clearly “keying” on it / front-running it

  • And we absolutely BLEW through the flip level (4507 to the cash close of 4474 in about 20 minutes), which by our estimates meant $25B of Spooz to go from CTA Trend

  • This flow then took-out the 4500 strike with ease (notably the largest $Gamma strike)—where at that spot level also saw us near yesterday’s point of Dealer “max short Gamma,” in the area of ~ -$22B per 1%

  • And of course, the coup de grace was the NFLX outlook whiff after the cash Equities close, where this (former?) “General” of the FANGMAN / mega-cap Growth -era was slaughtered like a Microcap Lamb, -20% after-hours—which then further spiraled fears ‘liquidation cascade” fears across the Fund universe, where so many “thrivers / survivors” of the past decade simply overweighted 5-10 of these names and watched their “returns vs benchmark” drive asset growth

So now we know how we got down here, we should remember that into today’s Op-Ex, the set-up is as follows: massively short $Gamma and vs spot…

but with a huge percentage of $Gamma set to roll-off thereafter, which means potential for Delta relief next week.

The majority of the (negative) Gamma set to roll-off today is in client downside / Puts, meaning that Dealers will have MUCH less Delta exposure to hedge / sell futures against come next week…i.e. if we are now closer to the end of client de-risking and there is “less hedging required on smaller underlying books = downside not rolled-out,” Dealers will be buying-back their “short futures” hedges.

As SpotGamma highlights, yesterday certainly felt like some forced liquidations, which fed into large negative gamma and an accelerated drop. 4500 is the major gamma strike currently on the board, but all strikes are very put-dominated. As such we think today’s flows will be hyper sensitive to shifts in implied volatility (vanna) and decay (charm).

We show >=33% of total S&P + QQQ gamma expiring today, which will lead to put covering. We therefore anticipate some relief rally today (or an attempt at one).

Its likely that a lot of put flow is rolled out due to the FOMC (+ volatility & other general risks), and still feel that a meaningful, multi-session rally cannot take place until after Wednesdays Fed.

In other words respect the magnitude of possible rallies today, but we advise not to consider them stable.

SpotGamma concludes then that the clearing of puts is supportive of markets, and may spark a short cover rally. However, because of the FOMC we do not think implied volatility will be offered in large supply as traders hedge the event risk. While we do give an edge to “pre-Fed” S&P lows being in, but anticipate large directional swings into Wednesday.

This is very risky, fragile market with lots of large flows that can shift price rapidly.

But, McElligott notes that CTA shorts are now in-place for US and could act as further “fuel for a squeeze” on spot stabilization / client monetization…as for now, “buy to cover” triggers in S&P, Nasdaq and Russell 2k futures are far more proximate than next “sell triggers”

…the case for at least a short-term “mechanical” rally (meaning not one really built on bullish sentiment improving, per se) following Op-Ex and out-of the Fed next week still largely stands.

But the Nomura strategist concludes with a warning not to get too excited:

“Bigger picture however, the above is just providing a temporary “mechanical relief” and little more…because there is undoubtedly a sense we are in a new-regime from the Vol-sense”

We are forcibly transitioning to a world that requires “tightening” of still-too-easy financial conditions which requires simultaneously policy hiking and balance-sheet unwind

And that’s why all I keep hearing about from clients is a resumption of the “4Q18 Playback,” as the scar-tissue from that QT + hikes experiment is the backtest people are drawing on…

…but this time, with just so much more extensive speculative & valuation excess as a starting point

…but this time, due to the inflation issue, a “Fed Put” which is now struck much lower below spot…

…meaning no “dovish pivot” relief unless things get much, much worse from the markets-side.

Tyler Durden
Fri, 01/21/2022 – 10:45



Author: Tyler Durden

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Economics

Roku Investments At These Levels Make Sense

A few years ago I was a skeptic about the exuberance over Roku (NASDAQ:ROKU) stock. However, in the past two years I changed my mind because of the improvements…

A few years ago I was a skeptic about the exuberance over Roku (NASDAQ:ROKU) stock. However, in the past two years I changed my mind because of the improvements in the financial fundamentals. Therefore, today I am speaking as a proponent of buying the dip in ROKU stock.

Source: JHVEPhoto/Shutterstock.com

This week, equities are under pressure as investor sentiment has soured. This makes for touching trading conditions. For example, yesterday stocks fell out of bed mid morning and for no reason. The bulls had a clear win on their hand, and they chose to lose the game on purpose.

The lasting bad effect from that is that in the process they triggered bearish patterns. Almost all mega cap stocks are now below neckline that can carry prices much lower. Apple (NASDAQ:AAPL) for example triggered a bearish head and shoulders pattern that could target $156 per share.

The bulls can still save it, however now they are on their back feet peddling upstream. Similar scenarios are in the Nasdaq and the S&P 500 charts too. Amazon (NASDAQ:AMZN) has already started its breakdown from higher levels. And Netflix (NASDAQ:NFLX) just finished its target and then some.

ROKU Stock Is in Good Hands

ROKU Stock Chart Showing Base Below
Click to Enlarge
Source: Charts by TradingView

This brings us to ROKU stock, which has already been in pain for months. There was good news yesterday because among the rubble, it managed to close positive on the day. Sadly, it fell overnight in sympathy to the reaction to Netflix’s recent earnings report. Investors completely rejected the message from Netflix and sold the stock down 20%. This dragged Roku down after hours erasing whatever good news transpired during the day.

My selling point today is more about technicals than fundamentals. However, it is good to know that the company is executing on plans very well. Otherwise they wouldn’t have delivered a tenfold increase in gross profit since 2016 and a six-fold increase in revenues. Clearly they know what they’re doing, so investors should give them the benefit of the doubt.

The growth rate is not showing signs of deceleration. Therefore I can assume that this swoon in ROKU stock price will pass. Statistically this is not an expensive stock with a price-to-sales under 10. This puts it in the range of Apple, Microsoft (NASDAQ:MSFT) and Facebook (NASDAQ:FB).

If there are no fundamental problems, then the chart would be the second opinion I need. In this case Roku has already shed 70% of its value since its all time high. Moreover, it reached the level that was a massive failure in 2019, and the breakout after the pandemic. When stocks fall into such pivotal zones, they tend to find support. I bet that there are buyers lurking below these current prices.

Guard Against Outside Factors

Since I noted the technical bearish triggers in the indices I must leave room for error. Investors looking to initiate positions in Roku should only do partial size at first. The idea is to average in, not average down. Wall Street is having a crisis of sentiment in anticipation of the Federal Reserve monetary policy change. My gut says that our imagination is being more bearish than it needs to be.

Hopefully soon Federal Reserve Chair Jerome Powell sheds some light over their plans. Until then investors will be preparing for the worst. Those already long the stock may have missed the opportunity to panic out of it. The easy fall has already happened, and the bears from here will need hard work to do more damage.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Nicolas Chahine is the managing director of SellSpreads.com

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Author: Nicolas Chahine

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