Rivian Automotive Stock: Bear vs. Bull

Rivian Automotive (RIVN -0.13%) has been a polarizing stock since its IPO last November. The electric vehicle (EV) maker first attracted a bull rush because it was backed by Amazon (AMZN 2.07%) and Ford Motor Company (F 2.21%)but bears mangled the stock after it hit nose-bleeding valuations and the company abruptly cut production targets.

As a result, Rivian’s stock price initially rose from its IPO price of $78 to $106.75 in its very first trade, hit an all-time high of $172.01 a week later, then dropped to an all-time low of $19.25 in May. Today, the stock is trading again in the $30 range, but remains extremely volatile.

Image source: Rivien.

Should investors try their luck on Rivian now? Let’s compare the bearish and bullish cases to decide.

What bears will tell you about Rivian

Bears will say that Rivian’s biggest backers are losing faith in the company: that it has overstated its production capabilities, its losses continue to widen, and its stock still isn’t cheap.

Rivian currently produces three vehicles: the R1T pickup truck, R1S SUV, and Amazon’s EDV (electric delivery van). Its R1 vehicles start at less than $70,000 and can travel over 300 miles on a single charge.

Amazon initially placed an order for 100,000 VEDs, which can travel about 150 miles on a single charge, to be delivered by 2030. But in January, Amazon also agreed to start buying the electric Ram ProMaster from Stellantideformerly known as Fiat Chrysler, in 2023.

This agreement suggested that Amazon was not confident in Rivian’s ability to fulfill its entire order. In March, Rivian confirmed those fears by halving its full-year production target from 50,000 to 25,000 vehicles as it grappled with supply chain issues. Ford also cut its stake in Rivian from 12% to less than 10% in May.

Even if Rivian ships 25,000 vehicles this year, that would only generate about $1.84 billion in revenue. So, at its current market cap of $35 billion, its stock is still trading at 19 times this year’s sales. By comparing, You’re here (TSLA 4.67%) is trading at less than 11 times this year’s sales.

In the first half of 2022, Rivian generated $459 million in revenue — compared to nothing in the first half of 2021 (before it started shipping vehicles) — but its net loss more than tripled from $994 million to $3.3 billion. For the full year, it expects to post a net loss of $5.45 billion, compared to its previous forecast of a net loss of $4.75 billion. This red ink makes Rivian a tough stock to own as rising interest rates drive investors away from speculative growth stocks.

What the bulls will tell you about Rivian

The bulls will argue that Rivian can meet its production targets, that its higher expenses are unsurprising and that it can afford to rack up losses for years as it ramps up production.

By the end of the second quarter of 2022, Rivian had received approximately 98,000 pre-orders in addition to its initial order of 100,000 EDVs from Amazon. It shipped 4,467 vehicles in the second quarter, which nearly quadrupled sequentially, and it has manufactured about 8,000 vehicles since it began production last September. It also remains on track to meet its full-year production target of 25,000 vehicles.

Rivian has an annual production capacity of 150,000 vehicles. It plans to increase its annual capacity to 200,000 vehicles in 2023 with the expansion of its original plant in Illinois and the planned opening of its Georgia plant, and that the combined capacity of the two sites will eventually reach 600,000 vehicles.

Therefore, investors should expect Rivian’s short-term losses to increase as it ramps up production. That pressure could eventually ease if it fixes its supply chain issues. As for its liquidity, Rivian ended its second quarter with more than $15 billion in cash, cash equivalents and restricted cash. Its low leverage ratio of 0.2 also gives it plenty of leeway to raise more capital.

Which thesis makes more sense?

Rivian is doing better than more speculative EV makers like Lucid and Canoobut he still has to face an exhausting battle before he can be comfortably compared to Tesla – who shipped 936,172 vehicles last year – or to traditional automakers.

Rivian’s stock looks more reasonably priced than last year, but much of the growth is still priced into its stock. I think Rivian might still be worth snacking on right now, but its high price-to-sales ratio prevents me from warmly recommending it as a long-term investment in this raw market.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Leo Sun holds positions at Amazon. The Motley Fool holds positions and recommends Amazon and Tesla. The Motley Fool has a disclosure policy.

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