EVs, China, and The Fed

Brit Ryle

Posted February 24, 2023

I’ve got a few things on my mind this morning, so I’m going with a sort of digest format today…

*****I recommended electric truck maker Rivian (NASDAQ: RIVN) back in early January, shares were trading $16.50 to $17.50. Rivian has four things going for it: good truck, plenty of cash, long-term deal with Amazon and an expected 200% jump on revenue for fiscal 2023. 

Rivian stock has been up to $21 since I recommended it. But the simple fact is: if there’s been even a shred of good news for the electric vehicle (EV) sector in the last couple months, I haven’t seen it…

What I have seen is production cuts, recalls, supply chain problems and order cancellations. 

Of course there would be problems as EV makers went from prototype to mass production. Just this week, Lucid cut its 2023 production estimates from over 20,000 cars to as few as 10,000. Nikola said it would probably only make 300 trucks this year. And Lordstown has halted production to address quality issues…

And if that weren’t enough, Ford and Tesla have cut prices, suggesting that demand is also a problem…sheesh.

So is there any hope that Rivian will buck the trend and have some good news for investors when it reports earnings next week? Probably not…

Rivian has already cut staff and slowed construction at its new factory in Georgia. That doesn’t sound like a very good formula for ramping production. We should expect to see that 200% revenue growth forecast for next year get cut. 

But the thing to remember is that stock prices always anticipate what’s on the horizon. Which is why EV stock prices have been in the tank for the last 6 months. It’s like they were pricing in the news that we are getting right now…

Now, I can’t tell you that the negative cycle for EV makers is bottoming right now. There’s just too many moving parts – from supply chains to the economic outlook and the health of the consumer. But what I can tell you is that Barclay’s just slapped an “overweight” rating on Rivian and gave it a $28 price target. Rivian is the only EV startup I am comfortable owning, and if the shares get whacked next week, I’m buying. 

*****Well, well. As I write on this beautiful morning in Southern Georgia, the S&P 500 hundred is getting whacked after the latest inflation data came in hotter than expected. Of course, the Fed’s mouthpiece – Goldman Sachs – has already “leaked” that interest rates will end up higher than what was expected just a few weeks ago…

But in any event, today’s inflation “surprise” has the S&P 500 trading down to 3,948 as I write. Hmmm…3,948…why does that number sound so familiar…?

Probably because on Wednesday, I wrote that the S&P 500 “…chart suggests that we could well see some support at the 50-day moving average at 3,979. But for the immediate future, I’m far more interested in the imminent collision of the black and blue lines – the 200-day moving average and the rising trendline – at 3,940…”


Source: Yahoo Finance

The low for the S&P 500 today is 3,944, not quite 3,940, but what’s 4 points amongst friends? 

I’m not piling into any upside trades today on the expectation that stocks will immediately reverse higher. But I will say that a window of opportunity for an upside move is now open. I’ll be watching for support to be established at the intersection of the 200-day moving average (black line) and the rising trendline, in blue. 

*****There’s a couple noteworthy items from China this week. One, it was reported that China was on the verge of sending arms to their pal Putin to help Russia kill more Ukrainian citizens. And two, instead of another spy balloon, China floated a cease-fire proposal for the war in Ukraine that would cede Russian-occupied Ukraine territory to Russia. 

Now, I expect Putin probably had a hand in that proposal. But I’m more interested in what China’s thinking. Because if China does indeed decide to send weapons to Russia, the shit between China and the U.S. is really going to hit the fan. 

Back in 2018, Blackrock’s Russia ETF (ERUS) was at its peak, with assets of $800,000 million. ERUS asset value was basically nil by the time Russia banned investors like Blackrock from trading Russian stocks. Blackrock had no choice but to close the ERUS ETF, and it promises to return funds to its investors, if it is ever able to actually liquidate…

Given the current state of U.S. – China relations, I wouldn’t own a single share of any Chinese company. And I’m leery about owning shares of U.S. companies that do a lot of business in China. 

But if China sends weapons to Russia? 

Blackrock’s iShares MSCI China ETF (MCHI) currently has over $9 billion in assets. Blackrock is not going to come and say they see risk in Chinese assets. In fact, they’ve got 9 billion reasons not to…

Briton Ryle
Chief Investment Strategist
Pro Trader Today