Rivian: Can EV-Maker’s Bull case survive this year’s 68% drop?
- Rivian’s weakness this year is much worse than ETF Global X Autonomous & Electric Vehicles’ 30% drop
- EV startup faces supply chain hurdles and cost pressures as it tries to ramp up production
- Despite these setbacks, Rivian remains the startup best placed to compete You’re here in the rapidly growing electric vehicle market
Rivian Automotive Inc (NASDAQ:) appears to have lost investor confidence this year. Shares of the Irvine, Calif.-based company are down about 68% this year.
Despite the ongoing widespread selling off of growth names, especially those with negative earnings, Rivian’s fall is much steeper than the 31% drop in ETF Global X Autonomous & Electric Vehicles (NASDAQ:) since the beginning of the year.
The obvious explanation for this dramatic drop is that Rivian was simply overvalued during its successful $13.7 billion IPO in November last year. At that time, its stock was trading at 35 times estimated sales, making it more vulnerable to economic headwinds and interest rate hikes.
Another reason investors are skipping RIVN stock is that its earnings are expected to remain in the red for some time, with no clear path to near-term profitability.
In its final month, Rivian cut its adjusted earnings forecast, expecting a full-year loss of $5.45 billion, hurt by rising production and material costs. Rivian previously reported adjusted earnings before interest, taxes, depreciation and amortization of negative $4.75 billion.
Rivian, which makes the R1T pickup and R1S sport utility vehicle as well as electric delivery vans, is struggling to ramp up production at its Normal, Illinois plant.
Recently, the company announced that it would cut 6% of its workforce as changing market conditions impact its ability to raise capital.
The best positioned startup
Despite these shocks stemming primarily from deteriorating macro conditions, I don’t think the initial bullish scenario for this stock is dead.
Rivian is still the startup best positioned to compete with Tesla (NASDAQ:) in the rapidly growing electric vehicle market. Rivian, based in Irvine, Calif., plans to manufacture 25,000 electric vehicles this year.
Demand for electric vehicles is expected to remain strong, helped by government subsidies to promote clean technologies and consumer willingness to adopt them.
This month, Mercedes Benz Group AG (ETR:) announced plans to jointly build electric vans with Rivian in Europe, a move that could help the former rapidly expand operations. The two will invest in and operate a new assembly plant at an existing Mercedes plant in Central or Eastern Europe which will begin production in “a few years”, according to a statement. The companies did not disclose details of the 50-50 joint venture, including investment figures.
Additionally, most Wall Street analysts polled by Investing.com consider Rivian stock to be undervalued after this year’s drop. More than 60% of respondents rate the stock as an outperformer, with their consensus price target showing almost 74% upside potential.
In a recent note, Canaccord Genuity said Rivian’s relationship with Amazon (NASDAQ:) not only provided the newcomer with capital and an initial order, but also gave the electric vehicle maker immediate scale with which to can achieve several cost, manufacturing and design advantages. .
Rivian differentiated itself by designing most of its hardware and software in-house. This approach, according to Canaccord, should drive product differentiation, improved customer service and strong margins. Rivian has the ingredients to become a market leader in electric vehicles and mobility, the note adds.
Amazon, which invested $700 million in RIVN in 2019, plans to buy 100,000 custom-built electric delivery vans from the company, as part of its move to electrify its last-mile fleet by 2040. Kick-starting that project has been underway since the summer, with the first electric vans aiming to deliver packages in a handful of cities, including Seattle, Baltimore, Chicago and Phoenix.
Despite recent setbacks, there are strong reasons to believe that Rivian can still be a successful player in the EV market due to its significant lead in the battery-powered pickup truck segment and backing from deep-pocketed Amazon. The company’s recent partnership with Mercedes is further evidence of this potential.
However, investors should also note that it will still take a long time for the company to ramp up production and become profitable. By comparison, Tesla took a decade to grow and achieve its first full year of profit.
Disclosure: The author does not own shares of the companies mentioned in this article.