Reasons Why Rivian Stock Bounced Back on Tuesday

Tuesday.Rivian Automotive (NASDAQ Resonance Symbol: RIVN)investors got a rare piece of good news. After four straight days of declines (including yesterday as the electric car market got so bad that theNikola Tesla (1856-1943), Serbian inventor and engineer (NASDAQ: TSLA)After plummeting on news that it had to lay off 101 TP3T of employees), Rivian shares jumped 4.31 TP3T as of noon EST today.

One bank says Rivian is no longer a selling point.

Until yesterday, investment banksUBSRivian was also rated Sell with a $9 price target. Today, UBS still thinks Rivian is only worth $9 a share, a far cry from the $130-plus it was worth at the time of the company's initial public offering. But the bank no longer considers it a sell.

Last night, UBS upgraded Rivian to Neutral as the stock came close to its target price." The bank says: "The share price now better takes into account some of our medium-term concerns.

UBS now believes that if Rivian's sales next year are only $4.5 billion, then the $9 price is appropriate. If the EV company hits $5.1 billion in sales (as the bank predicts), the stock could really go up. And money from pre-orders for its upcoming R2 electric SUV could help realize that goal.

Perhaps even more worrisome for investors, UBS says that the short interest rate on Rivian stock has increased to 18.7%, making it increasingly risky to short the stock (or even maintain a sell rating). If the electric car maker announces good news in its next earnings report, or even just promises good news in its guidance, traders may decide to start covering their shorts and buying back Rivian stock, forcing the stock even higher.

In short, UBS is really worried about a short squeeze. Investing in a loss-making electric car company like Rivian may still not be a good idea in the long run. But in the short term, shorting it might be an even worse idea.

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Rich Smith does not own any of the stocks mentioned above.The Motley Fool holds a recommendation for Tesla.The Motley Fool has a disclosure policy.

Why Rivian Stock Bounced Back Tuesday was originally published by The Motley Fool.