Rivian Automotive (NASDAQ:RIVN) stock is once again moving lower, on the “news” a bearish research note from UBS’s Patrick Hummel.

In the report, Hummel argues that the U.S. is on the verge of an automobile glut. With supply chain bottlenecks easing, automakers across-the-board are increasing production, even as demand is at the risk of cooling, because of the overall economic slowdown. This news has placed pressure on automotive stocks, electric and non-electric alike.

But while it may seem like the market is overreacting to this news, I wouldn’t jump to that conclusion. Rivian, despite perceptions, isn’t immune to demand headwinds that may be emerging. Atop other issues that have yet to resolve, there’s now something else working out of the company’s favor.

RIVN Stock: A New Challenge to the Bull Case

As clear from management’s current guidance, the sell-side community’s forecasts, along with the sharp decline in Rivian’s stock price since its public debut, few expect this electric vehicle upstart to live up to initial expectations.

However, in contrast to other early-stage EV names, there is greater confidence that Rivian will live up to current, scaled back expectations. The “run-up thesis” is a great way to describe this view, and this bull case goes as follows.

Despite quarterly production figures that suggest otherwise, management’s guidance still calls for the company to produce 50,000 vehicles this year.

With a reported backlog of 114,000 vehicles, once said production ramp-up occurs, Rivian presumably will have plenty of demand to sell into. Many RIVN stock bulls may subscribe to this thesis, but before you run out and buy the stock, keep in mind the flaws to this argument. For starters, the aforementioned backlog figure was last updated in November.

Rivian no longer provides net reservation numbers. It is unclear whether the company is experiencing reservation declines, as seen with Lucid Group (NASDAQ:LCID). Even if the company’s backlog has not gone down, a vehicle glut could limit future reservation growth.

A More Pertinent Issue in the Near-Term

Demand issues are something that could affect Rivian in the near-term, in the long-term, or possibly both. Admittedly, until the ramp-up happens, it’s unclear how much deliveries will climb up with it.

But while the demand issue may be less of an immediate problem, remember that there are other existing issues with RIVN. One in particular could resume affecting its price performance. Said issue has to do with capitalization.

Sure, with $11.6 billion in cash and cash equivalents as of Dec. 31, 2022, Rivian is not nearly as cash-starved as many other EV upstarts. The company is guiding for losses (on an EBITDA basis) similar to what it reported in 2022. With this, expect there to be renewed pressure for the company to raise more cash through the sale of new stock.

Given that selling new shares will be dilutive to existing RIVN investors, future capital raises, much like the last capital raise in March, will probably drive shares down to lower prices. Although a big jump in production/deliveries could help to mitigate, or perhaps counter, this major negative, the aforementioned demand headwinds call this into question.

The Takeaway

UBS’s bearish take on the automotive space underscores how RIVN is not a strong opportunity in the current market environment.

Once considered a disruptor of what is the profit center of the “Detroit Three” (large vehicles like trucks and vans), a lackluster track record for turning projections into actual performance has left the company struggling to stay ahead of the incumbents. They are quickly gaining ground in the EV space.

Meanwhile, with all of this delaying a move to profitability, there’s a growing chance that future upside will be curbed by heavy shareholder dilution.

As the cherry on top of a mountain of existing issues, a vehicle glut could take the situation with RIVN stock from bad to worse. With this, there’s more reason to steer clear.

RIVN stock earns a D rating in Portfolio Grader.

On the date of publication, Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.