Rivian Automotive (NASDAQ: RIVN) attracted a lot of buyers with its IPO on November 9, 2021. The electric vehicle (EV) maker went public at $78 per share, and its shares opened at $106.75 before hitting a record high of $172.01 just a week later.
At its peak, Rivian’s market capitalization reached $153 billion, 92 times higher than the revenue it would generate in 2022. This briefly made the small electric vehicle maker more valuable than Fordor General Motors.
Rivian stock initially soared for three reasons: It was supported by Amazon and Ford, already producing thousands of electric vehicles, and becoming public companies at the height of the meme stock craze. But currently, Rivian shares are trading at around $10, giving it a much lower market capitalization of $10 billion. That’s less than 2 times the revenue it expects to generate next year.
The increase comes as Rivian’s growth slows, the company suffers heavy losses, and rising interest rates increase its valuation. Ford also scrapped its plans to develop an electric pickup jointly with Rivian in 2021 and liquidated most of its stake in the company in 2022. But could buying Rivian now when the market is avoiding it set you up for big profits in the future?
Why did Rivian disappoint its investors?
Rivian currently produces three vehicle models: the R1T pickup, the R1S SUV, and a dedicated delivery van that it sells to Amazon. Before its public debut, Rivian claimed it would produce 50,000 vehicles by 2022. Instead, they produced 24,337 vehicles, and only delivered 20,332. They blamed the disappointing numbers on supply chain constraints, slowing electric vehicle market growth, and other macro headwinds across the industry.
In 2023, Rivian overcomes these challenges by producing 57,232 electric vehicles and shipping 50,122 units. Its growth accelerated as it resolved supply chain issues and increased in-house production of Enduro drivetrains to cut costs.
But for 2024, Rivian only estimates it can produce between 47,000 and 49,000 vehicles. Again, it blamed supply chain problems — but the problems were compounded by the temporary closure of its main Illinois factory for upgrades in April, stiff competition in the electric vehicle space, and higher interest rates. They estimate full-year deliveries will reach between 50,500 and 52,000 EVs.
Can Rivian finally scale up its business?
Rivian’s revenue jumped 167% to $4.43 billion in 2023, but only slightly reduced its net loss from $6.75 billion to $5.43 billion. In 2024, analysts expect its revenue to rise just 6% to $4.71 billion, but expect its net loss to narrow to $4.88 billion. The losses were substantial, but Rivian still had $9.18 billion in total liquidity (including $7.87 billion in cash, cash equivalents and short-term investments) on its books at the end of June.
Volkswagenalso launched a new joint venture with Rivian in June to jointly develop new EV architecture and software. As part of the deal, the German automaker plans to invest up to $5 billion in Rivian and its joint venture over the next two years. The fresh money will leave room for Rivian to bring its new, cheaper R2 SUV to market in 2026, launch its high-end R3 and R3X SUVs in 2026 and 2027, and continue to fulfill Amazon’s massive order of 100,000 electric delivery vans through the year 2030. They also plan to start selling some of these delivery vans to other customers over the next few years.
To support its expansion plans, Rivian recently applied for a federal loan, seeking funds to proceed with construction of a new $5 billion factory in Georgia that could ultimately double its annual production capacity. The roadmap sounds promising, but Rivian still needs to overcome its latest supply chain obstacles and prove that it can scale its business.
Unfortunately, Rivian insiders have sold nearly 86 times as many shares as they bought over the past three months, so it may take a long time to stabilize its shaky business and convince the market that the company deserves a higher valuation. On the bright side, Amazon still holds its stake in Rivian and remains its primary investor.
Could Rivian stock set you up for life?
Rivian’s low price-to-sales ratio could make it a tempting turnaround play for value-seeking investors. If he can scale his business in the same way Tesladone over the last decade, from here can become a millionaire stock maker. However, Tesla had the advantage of being an early mover in the electric vehicle space, helped by greater government subsidies, and did not face much direct competition during its expansion phase. It’s too early to assume that Rivian can replicate Tesla’s growth trajectory.
But with Rivian stock trading at this price, the downside risk for new investors is limited — and it could be a worthwhile investment for aggressive speculative investors looking for long-term gains. Rivian certainly has the potential to turn a small investment into a major asset, but its shares could also easily be cut in half again (or worse) if the company can’t significantly increase its production of electric vehicles.
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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 has a position in Amazon. The Motley Fool has positions and recommends Amazon, Tesla, and Volkswagen. The Motley Fool recommends General Motors and Volkswagen Ag and recommends the following option: 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? originally published by The Motley Fool
