Short selling data can be a very useful risk management tool. Generally speaking, short sellers are well-informed. If they’re shorting a stock, there’s usually a good reason they are doing so.
In this report, we are going to analyze the short selling data on Rivian Automotive Inc (RIVN:US). Rivian is an electric vehicle (EV) company that went public via an Initial Public Offering (IPO) in 2021. Its flagship model is the R1T pick-up truck, which recently won the MotorTrend Truck of the Year award. The company is listed on the NASDAQ Global Select Market and currently has a market capitalization of $58 billion.
Rivian Automotive: Short Selling Activity
Looking at the short selling data on Rivian, we see several red flags.
The first is that short interest is high. At present, 31.6 million shares are on loan. That represents approximately 20.4% of the free float.
The second is that the number of shares on loan and the utilization rate have risen significantly over the last two months. On November 24, the number of shares on loan was 9.5 million and the utilization rate was 11.2%. Since then, these figures have risen by 233% and 284% respectively. This trend is concerning, in our view, as it indicates that the short sellers are ramping up their short bets here.
The rise in short selling activity here is confirmed by Nasdaq short interest data, which shows that short interest has risen significantly since mid-November.
Why are short sellers targeting Rivian?
As for why the short sellers are targeting Rivian, it’s most likely due to the company’s valuation.
While Rivian’s share price has already come down a long way since November, when there was a great deal of IPO hype, the company’s market cap is still very high ($58 billion) given that it has only sold a handful of vehicles to date. For 2022, the consensus sales forecast is $3.5 billion. That puts Rivian stock on a forward-looking price-to-sales ratio of 16.6.
Operational risk is another issue that the short sellers may be looking at here. In December, Rivian told investors that it expected production to be a “few hundred vehicles short” of its 2021 target of 1,200 vehicles due to supply chain issues. Supply chain issues are still very much present within the automotive industry right now so there’s a chance that Rivian’s 2022 production figures and revenues could disappoint. It’s worth noting that Rivian’s COO, Rod Copes, stepped down in late 2021.
Whatever it is the short sellers are focused on here, we think caution is warranted towards the stock. The high level of short interest suggests that the short sellers expect the stock to fall.