Should investors buy Rivian Automotive (NASDAQ:RIVN) stock now that the bounce following its initial public offering (IPO) is over?
Shares of the electric vehicle maker raced out of the gate, jumping 72% in the six trading days immediately following its IPO on Nov. 10.
After peaking at $172.01 a share on Nov. 16, the company’s share price has come down nearly 35% to now trade at around $119.
The initial rally in Rivian stock led to gains across the electric vehicle sector. But with the shares and the broader market coming back down to earth, many investors are wondering if now is a good time to buy stock in Rivian.
A Closer Look at Rivian
Rivian Automotive stock’s rapid ascension gave the company a $100 billion valuation in short order.
That raised red flags on Wall Street with many analysts noting that Rivian had a higher valuation than both General Motors (NYSE:GM) and Ford (NYSE:F) despite the fact that Rivian has yet to record any revenue from vehicle sales.
Rivian introduced its first vehicle, the R1T electric truck, this past September and plans to launch its electric sport utility vehicle (SUV), the R1S, in December.
The company hopes to sell 1,000 vehicles this year and says it has pre-orders for 55,400 of them already. While positive, Rivian’s current sales pale in comparison to the major automakers and calls into question its initial valuation.
Much of the run up in RIVN stock and the company’s high valuation was the result of several high-profile backers, notably Amazon (NASDAQ:AMZN) and Ford.
Amazon held a 20% stake in Rivian ahead of its IPO, and is set to become its biggest customer as the online retailer plans to use Rivian vehicles for its delivery fleet. Ford had invested $500 million in Rivian in 2019 and planned to collaborate on electric vehicles and related technology.
The backing of Amazon and Ford gave investors confidence in taking a position in Rivian stock following its market debut.
However, RIVN stock plunged recently after it was disclosed that Ford no longer planned to jointly make electric vehicles with Rivian.
Each company issued a written statement saying that their plans had changed since the original collaboration was first announced two years ago and pointed out that Ford remains a major investor in Rivian with a 12% stake in the start-up.
But the statements did little to reassure investors and RIVN stock fell more than 15%.
Ford and Rivian were planning to jointly develop a Lincoln-branded electric vehicle pick-up truck, but those plans have been scrapped and Ford is now proceeding with its own F-150 Lightning electric pick-up truck and has announced that it’s spending $7 billion to build a new electric vehicle manufacturing plant in Tennessee.
Questions About Technology
One of Rivian Automotive’s distinguishing features is its “modular chassis” design that the company has dubbed the “skateboard.”
Essentially, this means that Rivian vehicles house their battery and other components in a single unit that can be adapted to its entire line-up and sold to other automakers. This approach enables Rivian to simplify its supply chain and scale its production quickly.
Rivian’s skateboard technology garnered a lot of initial interest from automakers and technology companies, as well as analysts.
Now, though, the cancellation of the Ford collaboration has led some people to suggest that Rivian’s skateboard design might not be distinctive enough or provide enough competitive advantage for external automakers such as Ford to adopt it for their own fleet of vehicles.
Be Careful With RIVN Stock
Rivian Automotive remains a compelling electric vehicle start-up. The company is at the point where it is manufacturing trucks and SUVs, which puts it streets ahead of most other fledgling electric vehicle companies.
Moreover, both Amazon and Ford remain major investors in Rivian. However, there are enough questions circling the company that investors should approach RIVN stock with caution.
That Ford has backed out of its planned collaboration with Rivian is concerning, and even after the recent share price decline, the company’s valuation remains incredibly high for an electric vehicle maker that has not yet generated any sales revenue.
Given these factors, and the general froth within the EV sector right now, investors may want to keep an eye on Rivian from the sidelines for the time being. RIVN stock is not a buy.
On the date of publication, Joel Baglole held a long position in GM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
