Why Rivian Stock Expectations Could Be Too High

Overall, Rivian (NASDAQ:RIVN) stock has been hit harder by this year’s backlash against electric vehicles (EVs) than its competitors.

The back of a silver Rivian (RIVN) pick-up truck.

Source: Miro Vrlik Photography / Shutterstock.com

In fact, RIVN stock is down 36% since the start of 2022, even after a 6% gain on Feb. 15. Compare that to a 30% year-to-date (YTD) drop at Lucid Group (NASDAQ:LCID), an 27% YTD drop for Nio (NYSE:NIO) or a 19% YTD drop in Tesla (NASDAQ:TSLA).

That said, just don’t equate a falling stock price with a cheap stock. Rivian has a market cap of $58.6 billion, 16 times its expected revenue of $3.53 billion for fiscal year 2022. It also has smart new investors like George Soros and David Einhorn.

However, the question remains: as the cartoon rabbit said, how long are these guys in for, Doc? Let’s dive in and take a closer look.

Rivian Ramps Up

Collectively, Rivian hopes to produce 25,000 cars this year. And what’s important to remember is they’re all sold.

Moreover, Amazon (NASDAQ:AMZN) has an order for 100,000 vans, roughly 12,000 per year through 2030. It recently hedged that bet by signing a deal with Stellantis (NYSE:STLA), formerly Fiat-Chrysler, but the Rivian deal remains in place.

Rivian also has firm deposits on its 2023 production. The challenge, though, is making the cars. With that, the company announced an incentive-laden deal with Georgia to build a plant outside Atlanta. While some locals are pushing back, their challenges are not likely to go anywhere. Despite running to a non-union environment, Rivian still has a friend in President Joe Biden.

Nonetheless, saying the “only challenge is scaling” is also misleading. Tesla was nearly destroyed by the scaling problem in the last decade. Rivian’s failure to deliver even 1,200 vehicles in 2021 has small investors bailing. They’re being replaced by big investors like California’s pension fund, CalPERS. Also, Rivian CEO R.J. Scaringe still expects to make 1 million vehicles by 2030.

Who Do You Believe

So, whether you buy Rivian or sell it depends on whether you believe its order book or its supply chain.

Rivian recently delayed delivery of its high-capacity battery pack to 2023. But it still has 71,000 pre-orders for its pick-up truck and SUV in North America. The current battery runs 314 miles on a charge, and the bigger one will run 400.

Whether that’s a problem depends on what you think of the Biden Administration’s plan to put $5 billion into new charging stations. Most will be along interstate highways. In turn, states must apply for the money, and only $615 million will be available this fiscal year.

Moreover, the Super Bowl also showed the distance between electric promise and reality. Most of the car ads on the broadcast were for EVs, but almost none are being delivered. General Motors (NYSE:GM), Ford Motor (NYSE:F), and China’s Geely (OTCMKTS:GELYF) — which owns Polestar and Volvo — all showed big fancy electrics riding highways. The keywords here are big and fancy.

Furthermore, the current median price for a new car of $47,000  is leading middle-class shoppers to buy used gas models. But, the price of these cars is also at a high.

The supply-demand imbalance in cars, in other words, exists across the board and is especially pronounced in the mid-market. For Rivian, or any carmaker, to say they have a full order book isn’t unusual. Everyone does.

The Bottom Line on RIVN Stock

However, unless and until Rivian can get over its supply chain woes, it will trade like a growth stock and not a manufacturer.

Even after it gets over those woes, Rivian will be a pricey stock from which you can’t expect profits for several years.

That means in 2022, Rivian is a trade and not an investment. You can make money, long and short, playing on the greed and fear of other people. But if you’re looking for something you can buy at a good price now and ignore for several years, I would look elsewhere.

On the date of publication, Dana Blankenhorn held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.


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