Rivian Automotive (NASDAQ: RIVN) experienced a surge of bullish interest with its IPO on November 9, 2021. The electric vehicle (EV) manufacturer went public at $78 per share, and its stock opened at $106.75 before reaching a peak of $172.01 just a week later.
At its highest point, Rivian’s market cap reached $153 billion, which was 92 times higher than the revenue it was projected to generate in 2022. This briefly made the relatively small EV maker more valuable than established automakers like Ford and General Motors.
Image source: Rivian.
Rivian’s stock initially soared for several reasons: it had backing from Amazon and Ford, it was already producing thousands of EVs, and it went public during the height of the meme stock frenzy. However, today Rivian shares are trading at around $10, giving it a market cap of $10 billion, which is less than 2 times the revenue it is expected to generate next year.
The bullish sentiment waned as Rivian’s growth slowed, it incurred significant losses, and rising interest rates deflated its inflated valuations. In addition, Ford abandoned its plans to collaborate on an electric pickup with Rivian in 2021 and sold off most of its stake in the company in 2022. But could investing in Rivian now, while it is out of favor in the market, potentially lead to substantial gains in the future?
Why Did Rivian Disappoint Investors?
Currently, Rivian produces three vehicle models: the R1T pickup, the R1S SUV, and a customized delivery van sold to Amazon. Before going public, Rivian had forecasted production of 50,000 vehicles in 2022. However, it ended up producing 24,337 vehicles and delivering only 20,332. This shortfall was attributed to supply chain challenges, a cooling EV market, and other industry-wide macroeconomic headwinds.
In 2023, Rivian overcame these obstacles and produced 57,232 EVs, delivering 50,122 units. Its growth accelerated as it addressed supply chain issues and increased production of its in-house Enduro drive unit to reduce costs.
For 2024, Rivian anticipates producing between 47,000 and 49,000 vehicles. Once again, supply chain challenges were cited as a factor, exacerbated by a temporary shutdown of its main Illinois plant for upgrades in April, fierce competition in the EV sector, and higher interest rates. Full-year deliveries for 2024 are expected to range from 50,500 to 52,000 EVs.
Can Rivian Successfully Scale Its Operations?
Rivian’s revenue surged by 167% to $4.43 billion in 2023, but it only marginally reduced its net loss from $6.75 billion to $5.43 billion. Analysts project that for 2024, revenue will increase by just 6% to $4.71 billion, with the net loss narrowing to $4.88 billion. While these losses are substantial, Rivian had total liquidity of $9.18 billion (including $7.87 billion in cash, cash equivalents, and short-term investments) as of June.
In June, Volkswagen initiated a new joint venture with Rivian to co-develop new EV architecture and software. As part of this agreement, the German automaker intends to invest up to $5 billion in Rivian and the joint venture over the next two years. This infusion of capital should give Rivian the flexibility to introduce its more affordable R2 SUV in 2026, launch the premium R3 and R3X SUVs in 2026 and 2027, and continue fulfilling Amazon’s substantial order for 100,000 electric delivery vans through 2030. Additionally, Rivian plans to start selling some of these delivery vans to other clients in the coming years.
To support its expansion plans, Rivian recently applied for a federal loan to secure funds for resuming construction on a new $5 billion plant in Georgia, which could potentially triple its annual production capacity. While this roadmap appears promising, Rivian must still address its current supply chain bottlenecks and demonstrate its ability to scale up its operations.
Regrettably, Rivian insiders have sold nearly 86 times more shares than they have purchased over the past three months. This suggests that it may take a while for the company to stabilize its business and convince the market of its worthiness for a higher valuation. On a positive note, Amazon retains its stake in Rivian and remains its primary investor.
Could Investing in Rivian Stock Lead to Long-Term Success?
Rivian’s low price-to-sales ratio could make it an appealing turnaround opportunity for value-oriented investors. If Rivian can expand its operations similarly to how Tesla has done over the past decade, it could potentially offer substantial returns. However, it is important to note that Tesla benefited from being an early mover in the EV space, received more generous government subsidies, and faced less direct competition during its growth phase. It is premature to assume that Rivian can replicate Tesla’s growth trajectory.
With Rivian’s stock trading at current levels, the downside risk for new investors may be limited, making it a potentially worthwhile investment for risk-tolerant investors seeking long-term growth. While Rivian has the potential to transform a modest investment into a significant asset, there is also the risk that its stock could decline significantly again if the company fails to substantially increase EV production.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun holds positions in Amazon. The Motley Fool holds positions in and recommends Amazon, Tesla, and Volkswagen. The Motley Fool recommends General Motors and Volkswagen Ag and also recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
Could Buying Rivian Automotive Stock Today Set You Up for Life? was originally published by The Motley Fool