Trump's Bill Would End EV Subsidies: Is Rivian in Trouble?

Yahoo

12 hours ago

Rivian is prepared to grow sales significantly regardless of tax incentives.
But eliminating tax incentives could have an odd effect on Rivian's competitiveness.
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Rivian Automotive (NASDAQ: RIVN) has a very promising future. Starting in early 2026, management expects to start production of three new affordable electric vehicles (EVs). Making affordable EVs priced under $50,000 is a huge milestone for an automaker. When Tesla released its affordable Model Y and Model 3 vehicles, sales boomed. Today, those two vehicles account for more than 90% of Tesla's auto sales.
Some recent news, however, could be a giant blow to Rivian's growth plans. President Donald Trump's new bill proposes cutting federal EV tax credits, which would make electric vehicles $4,000 to $7,500 more expensive to buyers. How much will Rivian suffer? The answer might surprise you.
Many investors are looking over electric car stocks to find the next Tesla. It's a worthy mission. Tesla shares have risen 23,000% in value since 2010. What's the key to spotting the next Tesla? Look for companies that can launch affordable models priced under $50,000. As mentioned, reaching this milestone creates a gigantic growth catalyst, making the automakers' models affordable to tens of millions of new buyers.
Right now, Rivian is right on track. After releasing two luxury models with premium price tags -- very similar to what Tesla achieved with its Model S and Model X vehicles -- Rivian is preparing to start production of three new affordable models: the R2, R3, and R3X. Production is slated to begin in early 2026, but I'm not expecting full production of all three models until 2027 or 2028. Still, there's no doubt that Rivian is prepared to hit its biggest growth milestone in years. With $4.7 billion in cash on the books, plus a deal with Volkswagen that could deliver several more billion dollars in capital, Rivian looks like it has the means to get these vehicles to market. That will allow sales to surge, and also provide significantly more operational leverage, likely improving profit margins.
Regardless of whether the EV tax credits are eliminated, Rivian has the capital to reach this growth catalyst, meaning sales growth should be expected whatever the future brings. Right now, Rivian's vehicles are priced between $70,000 and $100,000 depending on the exact package. If the company can price three new vehicles under the $50,000 mark, that makes its lineup significantly more affordable even without a tax incentive. In fact, eliminating the EV tax credit could end up helping Rivian long-term.
It should be stressed that Trump's bill to eliminate EV tax credits is only a bill right now. It has a long way yet to becoming law. But if these eliminations are put into place, expect EV demand to drop over the near term. EVs are already struggling to maintain cost competitiveness versus gas or diesel engines. Adding $4,000 to $7,500 to the final cost should eliminate many potential buyers, especially those seeking long-term cost savings. Rivian also generates "free" income by selling automotive regulatory credits -- a major factor in the company achieving positive gross margins in recent quarters. Like Tesla, however, most of these credits are earned by state programs like California's, making them unlikely to be cut anytime soon.
The important thing to note here is that most North American automakers don't yet have an affordable electric vehicle on the market, though most are trying. Consider Lucid Group, which aims to release several new mass market vehicles over the coming years. The company has less than $2 billion in cash on the balance sheet, and will almost certainly need more capital to get these cars to market. If its existing luxury models become even more expensive, that could lower demand and access to capital, making it harder for the company to actually get its affordable models to market. It's very possible the company could face severe financial uncertainty should these tax incentives be eliminated.
Rivian, meanwhile, is already profitable on a gross margin basis, unlike Lucid, though it does partially rely on federal automotive regulatory credits to achieve this.. It's also much further along in the development of its affordable models than Lucid, making it much more likely it actually gets these models to market. If other competitors struggle financially due to lower EV tax incentives, it's possible Rivian could gain long-term. However, it should be noted that over the short term, Rivian should take a direct demand hit.
The result is a mixed bag for Rivian. Demand would fall near-term due to higher costs for consumers. But a lessening of competition and investment by peers like Lucid Group could open up more long-term market share.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
Trump's Bill Would End EV Subsidies: Is Rivian in Trouble? was originally published by The Motley Fool