Rivian automotive sector (NASDAQ: RIVN) attracted a stampede of bulls with its IPO on November 9, 2021. The electric vehicle (EV) maker went public at $78 per share, and shares opened at $106.75 before hitting an all-time high of $106.75 just a week later reached 172.01.
At that peak, Rivian’s market cap was $153 billion, which was 92 times the revenue it would generate in 2022. It made the small EV maker more valuable for a moment Ford or General engines.
Rivian stock initially rose for three reasons: It was supported by Amazon and Ford, it was already producing thousands of electric cars, and it went public at the height of the meme stock craze. But today, Rivian shares trade for around $10, giving it a much more modest market cap of $10 billion. That’s less than twice the revenue it is expected to generate next year.
The bulls fled as Rivian’s growth slowed, suffering sharp losses and rising interest rates sent buzzing valuations tumbling. Ford also abandoned plans to develop an electric pickup with Rivian in 2021 and liquidated most of its stake in the company in 2022. But could buying Rivian now, while the market shuns it, give you huge profits in the future?
Why did Rivian disappoint its investors?
Rivian currently produces three vehicle models: the R1T pickup, the R1S SUV and a custom van that it sells to Amazon. Before its public debut, Rivian claimed it would produce 50,000 vehicles by 2022. Instead, it produced 24,337 vehicles and delivered only 20,332. It blamed these disappointing figures on supply chain constraints, cooling EV market growth and other macroeconomic headwinds in the sector.
In 2023, Rivian overcame these challenges by producing 57,232 electric vehicles and delivering 50,122. Growth accelerated as it resolved its supply chain issues and ramped up production of its in-house Enduro drive unit to reduce costs.
But for 2024, Rivian expects to produce only between 47,000 and 49,000 vehicles. Once again, the company blamed supply chain problems, but the problems were exacerbated by the temporary closure of its main plant in Illinois for upgrades in April, intense competition in electric vehicles and higher interest rates. It expects full-year deliveries to reach between 50,500 and 52,000 electric vehicles.
Can Rivian finally scale up its operations?
Rivian’s revenue rose 167% to $4.43 billion in 2023, but its net loss was only slightly limited from $6.75 billion to $5.43 billion. For 2024, analysts expect revenue to rise just 6% to $4.71 billion, but expect net losses to be limited to $4.88 billion. These losses are large, but Rivian still had total liquidity of $9.18 billion (including $7.87 billion in cash, cash equivalents and short-term investments) on its books at the end of June.
Volkswagen also 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 the joint venture over the next two years. That new money should give Rivian the breathing room to bring its cheaper new R2 SUV to market in 2026, launch its more expensive R3 and R3X SUVs in 2026 and 2027, and continue to fill Amazon’s massive order for 100,000 electric vans through 2030. It also plans to sell some of these vans to other customers in the coming years.
To support its expansion plans, Rivian recently applied for a federal loan, seeking funds to resume construction of a new $5 billion factory in Georgia that could eventually triple its annual production capacity. That roadmap sounds promising, but Rivian still needs to solve the last bottlenecks in its supply chain and prove it can scale its operations.
Unfortunately, Rivian insiders have sold nearly 86 times as many shares as they bought in the past three months, so it may take a long time for the company to stabilize its shaky business and convince the market that it deserves a higher valuation. On the other hand, Amazon still has its stake in Rivian and remains its largest investor.
Could Rivian Stocks Support You For Life?
Rivian’s low price-to-sales ratio could make it a tempting turnaround for value-seeking investors. If it can scale its operations in the same way Tesla has done over the past decade, it could be a millionaire stock from here. However, Tesla had an early mover advantage in electric cars, was helped by more generous government subsidies, and did not face as much direct competition during the expansion phase. It’s far too early to assume that Rivian could copy Tesla’s growth trajectory.
But with Rivian stock trading at these prices, the downside risk for new investors could be limited – and it could be a worthwhile investment for aggressive speculative investors looking for long-term profits. Rivian certainly has the potential to turn a modest investment into a major asset, but its stock could also easily be cut in half again (or worse) if the company can’t meaningfully ramp up electric vehicle 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 has positions in Amazon. The Motley Fool has and recommends positions in Amazon, Tesla, and Volkswagen. The Motley Fool recommends General Motors and Volkswagen Ag and recommends the following options: In January 2025, $25 calls on General Motors. The Motley Fool has a disclosure policy.
Can buying Rivian Automotive stock today be a lifetime guarantee? was originally published by The Motley Fool
