Don’t Ignore Rivian’s Strong Demand Metrics

In a previous column on Lucid (NASDAQ:LCID) stock, I wrote that investors were not focusing enough on the company’s unimpressive demand metrics, making them overly bullish on the shares. In the case of Rivian (NASDAQ:RIVN) stock, it is the opposite. I believe that investors have become far too bearish about the name because they have started to ignore the automaker’s powerful demand metrics.

The back of a silver Rivian (RIVN) pick-up truck.
Source: Miro Vrlik Photography / Shutterstock.com

For some reason, when it comes to young electric vehicle (EV) makers, investors have become overly focused on supply issues and are largely ignoring the more important demand side of the equation.

Importance of Demand

Rivian stock has plunged since the automaker lowered its 2022 production guidance to 25,000 EVs from 50,000 EVs due to shortages of key parts.

But on a positive note, orders for the company’s vehicles had jumped to 83,000 EVs as of Mar. 8, versus 71,000 at the end of last year. That is a 12,000 unit, or 17%, surge in a little over two months. And Rivian’s 83,000 orders compares very favorably with Lucid’s “over 25,000 reservations.”

The dichotomy of supply versus demand in this context reminds me of a famous saying in baseball. When baseball teams have too many good starting pitchers, the teams’ managers nearly always say, “that’s a good problem to have.”

It is usually very difficult to find good starting pitchers. It is true, however, that an overabundance of them does create a real problem for the manager. This is because the manager has to pick which one will start. Then, they must deal with complaints from those who are not picked, along with “second guesses” from fans and the media about their choices.

However, since finding good starting pitchers is one of the most difficult tasks for a baseball team, managers are happy to deal with an oversupply of them. And of course, dealing with the problem will definitely not be insurmountable.

Similarly, given the huge competition in the EV sector and the fact that the number of consumers who can afford and are ready to buy new, upper-scale EVs is relatively small, getting a high number of orders is one of the hardest tasks for an EV maker.

Conversely, with sufficient money, brainpower, and time, any supply issues will, in all likelihood, be overcome. So Rivian’s inability to meet its high demand can be looked at as “a good problem to have.”

Rivian Has the Right Tools

The automaker appears to have all the ingredients to remedy its supply issues. As of the end of the fourth quarter, it had over $18 billion in cash and only $1.53 billion of debt.

On Feb. 14, Rivian announced that it was hiring Tim Fallon as its vice president (VP) of manufacturing. Fallon was previously a VP of manufacturing for Nissan (OTCMKTS:NSANY).

Last but not least, on Mar. 14, Rivian hired a highly experienced auto executive, Frank Klein, as its chief operations officer. Klein is president of Magna Steyr, a Europe-based unit of the large Canadian auto equipment company Magna International (NYSE:MGA). According to Magna’s website, the division is a “globally recognized development partner for vehicle engineering.”

Klein’s LinkedIn profile states that he has been president of Magna Steyr since July 2020. Before coming to Magna in 2019, he spent 25 years in technical roles at Daimler (OTCMKTS:DTRUY). He is clearly an automotive manufacturing expert.

The Bottom Line on RIVN Stock

Way too much is being made of Rivian’s supply issues and way too little is being made of its success on the demand side. Over the long term, the supply issues will more than likely be solved. Meanwhile, after the shares’ recent drop, their valuation is very attractive.

Consequently, I recommend that long-term investors buy RIVN stock.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.


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