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This massive hedge fund just increased its stake in 1 EV Maker by 4,221%

The electric vehicle (EV) sector is in an intriguing place for potential investors. Overall, optimism on Wall Street has turned to pessimism as many upstart EV makers face cash crunches and declining demand. That said, it still seems almost certain that electric cars will go mainstream, and the tempting possibility of high long-term returns for those who choose one of the sector’s eventual winners is a prospect that continues to capture the attention of many investors has.

If you’re looking for clues about which young EV company to choose, consider this: A major hedge fund recently sold off its stake in Rivian car industry (NASDAQ: RIVN) with 4,221%.

Why follow hedge funds?

By looking at hedge funds and the stocks they buy and sell, investors can gain insight into what fund managers consider their best ideas. Typically, a manager has a handful of great ideas that command the largest positions in his hedge fund, and a much larger number of diversified smaller ideas that each carry less weight. Essentially, a fund’s top holdings represent ideas with higher conviction than the smaller holdings.

That’s why it’s notable that hedge fund Two Sigma Advisors backed Rivian stock in the fourth quarter. The hedge fund increased its position in the EV maker from about 275,000 shares to nearly 11.9 million. That transformed Rivian’s position in the fund from obscurity to a position in the top 30, out of more than 1,000 positions.

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Being greedy?

Warren Buffett famously advised investors to “be fearful when others are greedy, and be greedy when others are fearful.” In this case, Two Sigma Advisors appears to be right, while other investors have become fearful about the prospects for the EV industry.

To be honest, it’s normal for us to be cautious about the EV industry right now. Once promising car manufacturer Fisker has all but collapsed after failing to find the financial lifeline or investment needed to continue funding its operations, and is on the verge of being delisted from the New York Stock Exchange.

And the rest of this year looks likely to be bumpy for the sector, with slowing demand growth, a lack of affordable electric vehicles and higher interest rates making all car purchases more difficult. But this could be a good time to open or add to positions in the EV makers that can survive.

Is Rivian a bargain?

Rivian has a number of things in store. It posted a 167% increase in sales in 2023, and between the fourth quarter of 2022 and the fourth quarter of 2023, it reduced its gross loss per vehicle by approximately $81,000. Rivian also exceeded all aspects of its 2023 guidance and began offering leasing options for its R1 vehicles, which should help fuel demand for these vehicles since they start at just under $70,000.

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Management also made the decision to start production of the R2 SUV at the original factory in Illinois, rather than waiting for the Georgia factory to be completed. This will allow it to advance the launch date of the R2 while taking advantage of currently underutilized production capacity at the original factory, and will save the company approximately $2.25 billion in capital expenditure.

Rivian’s downside, like many young EV startups, is that it is in a race against time. The company has total liquidity of about $10.5 billion, but also spends roughly $4 billion to $5 billion annually to finance and grow its operations. While the company aims to achieve positive gross profitability by the end of 2024, it still needs to refine its operations and quickly build scale in the coming years.

It’s no coincidence that Two Sigma Advisors has chosen to make a significant investment in Rivian among the many options in the sector, but the stock is a highly speculative investment with plenty of risk. That said, Rivian appears to be one of the top EV startups considering a position in (if not the top pick) at a time when the rest of the market is feeling overly cautious about those companies due to slowing demand growth and the cash crunch challenges they face.

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Should You Invest $1,000 in Rivian Automotive Now?

Consider the following before purchasing shares in Rivian Automotive:

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This Massive Hedge Fund Just Increased Its Stake in 1 EV Maker by 4,221% Originally published by The Motley Fool

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