After the slump, is Rivian stock a buy? That’s what experts say

Supply chain issues hamper Rivian’s growth
Growing competitive pressure in the electric car sector
Ford sells, George Soros buys Rivian shares

Rivian celebrated a brilliant stock market premiere on November 9th: The car manufacturer took in 11.9 billion US dollars, the market capitalization at that time was 77 billion US dollars. For a few days, the share price rose steadily and reached the all-time high of $179.47 on November 16, 2022. Then followed a dramatic crash, the Rivian share is currently only a fraction of its former price at USD 28.92 (as of May 20, 2022). Are the papers of the young carmaker now undervalued?

Supply constraints and inflationary pressures hamper production

After years of preparation, the first electric car, the R1T pickup truck, was delivered from Rivian’s Normal, Illinois, facility on September 14th. However, bottlenecks in supply, especially of chips and raw materials such as lithium, are preventing the US electric car manufacturer from expanding production quickly. For this reason, Rivian CEO Robert Scaringe had to reduce the target of 50,000 delivered cars in the current year by half. The shareholders reacted in horror to the report, the share lost enormously. Only 1,227 vehicles were delivered in the first quarter of 2022, currently 200 cars could be delivered per week, according to “Investor’s Business Daily”. Although the trend is upwards: These figures are still a long way from the targeted 150,000 cars per year that the main plant in Normal is supposed to produce in the long term.

Another setback came on May 16 when it was revealed that Rivian was suing car seat supplier Commercial Vehicle Group for doubling its prices – an illustration of Rivian’s tremendous difficulty in getting the necessary components for the cars delivered. In order to improve supply chain management, the German ex-Mercedes manager Markus Klein was recently hired as the new Rivian COO.

The unsolicited, drastic price increases of 17 percent for cars already ordered were also not good advertising for Rivian. Although Scaringe withdrew this decision due to a public outcry at the beginning of March, his plans show how unprofitable Rivian is at the previously targeted list prices. The horrified investors sent the share down 25 percent within two days.

Tense competitive situation

With the R1T, Rivian brought the world’s first electric pick-up onto the market. But Rivian’s first-mover advantages don’t compare to Tesla’s. Long-established car companies such as Ford, General Motors and European brands such as Volkswagen and Mercedes-Benz have recognized the signs of the times and are increasingly turning to electric cars. Goldman Sachs estimates that by 2024 all established US automakers will have electric pickups in their range. General Motors will probably start delivering the premium Hummer pick-up at the end of this year. The advantage of the traditional groups is that, thanks to the profits in the combustion engine sector, they can finance the cost-intensive electrical innovations well and therefore do not make as high losses as Rivian. Tesla’s announced Cybertruck is also likely to further intensify the competitive situation.

High growth still targeted – is this realistic?

Despite the massive sell-off in the last six months, Rivian still has a market capitalization of almost 25 billion US dollars – with sales of only 95 million US dollars in the first quarter of 2022. For comparison: Ford is worth around 50 billion US dollars on 2021 sales of $136.8 billion (earnings before tax: approximately $17.8 billion). So only rapid growth can justify Rivian’s valuation.

What are the Tesla rival’s next steps to achieve such growth? Above all, Rivian is planning new car factories that should increase production potential. The construction of a new company near Atlanta (Georgia) has already been announced, according to “Reuters” by the end of 2024 the first cars from the factory near Atlanta should be delivered. In addition, Rivian is planning to build a company in Europe, according to “The Financial Times” Sumerset in England is probably the first choice here.

Rivian’s order from Amazon to deliver 100,000 electric vans by 2030 is also promising. The young company could thus become a great pioneer for electric delivery vans. Amazon now holds 18 percent of the Rivian shares, making it the largest shareholder. A long-term close cooperation with the tech giant could have a very positive effect on the young electric car manufacturer, according to “Investor’s Business Daily”.

Ford sells shares, but Soros buys

Ford, one of the largest shareholders in the electric car startup for years, has caused intense sales pressure in recent weeks. According to information from “Investor’s Business Daily”, the traditional US group sold eight million Rivian shares on May 11, followed by another seven million on May 13. As a result of these sales, Ford’s share of the Rivian notes fell below the ten percent mark, and Ford also gave up its seat on the Rivian supervisory board. As early as November 2021, Ford put the construction of a joint electric car with Rivian on hold. Nevertheless, Rivian remains “a strategic investment” for Ford, and the big player “continues to explore ways of potential cooperation with Rivian,” as Ford spokesman Ian Thibodeau told Reuters in October 2021.

After all: There are also well-known Rivian bulls. First and foremost is the legendary hedge fund manager George Soros. By the end of December 2021, Soros bought 20 million Rivian shares worth around two billion US dollars and continued to hold them in the first quarter of 2022, making the star investor one of Rivian’s largest single shareholders. The largest pension fund in the world, the California Public Employees’ Retirement System (CalPERS), recently bought 305,000 shares in the carmaker. Scaringe also remains optimistic: The CEO recently bought a package of Rivian shares worth around a million US dollars, according to a report by the US Securities and Exchange Commission (SEC).

Conclusion: Is Rivian a buy?

In view of the unclear business prospects, it is hardly surprising that the analysts’ price targets for Rivian are extremely varied. A self-confessed bull is Morgan Stanley’s Adam Jonas, whose price target is $147. “Rivian is still the only company that can compete with Tesla,” said Jonas. Although the road to increasing production is rocky, he believes that the problems are “only related to supply and not to demand”. In addition, Rivian is working on a solution to the supply chain problems by establishing its own joint ventures in the raw materials and battery sectors. The market has also not sufficiently priced in the strategic value of Rivian’s collaboration with Amazon.

Dan Ives from “Wedbush” is significantly less optimistic. The analyst recently downgraded his target price from $60 to $30. While the growth opportunities remain significant, “for these to materialize, Rivian needs to start delivering to customers and stop making apologies.”

All in all, a purchase of the Rivian share is not necessary at the moment, is the conclusion of “Investor’s Business Daily”. Rivian’s future is too uncertain, the competitive situation too great, and the delivery situation too inadequate. Additionally, the stock’s underperformance is discouraging, with Rivian stock scoring just 3 out of a possible 99 on the relative strength barometer, which compares the performance of individual stocks to the broader market. Nevertheless, one should not write off Rivian, the penalized car manufacturer still has a good starting position and can benefit in the long term from the electromobility mega trend.

Editorial office finanzen.net

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