Although the Nasdaq is tanking again today, tumbling 1.5%, Rivian (NASDAQ:RIVN) stock is climbing 3% in mid-afternoon trading. The electric vehicle maker’s shares are outperforming despite a negative note on RIVN stock that was issued today by BNP Paribas.
Given recent, positive data on EVs from China, the fact that there has already been very strong, proven demand for Rivian’s EVs, and the company has demonstrated its ability to meet its Q1 production target, I believe that today’s superb showing by Rivian’s shares is completely justified.
Powerful Demand for EVs in China and Intense Demand for Rivian’s EVs
Sales of Chinese EVs soared approximately 120% year-over-year last month to roughly 371,000, according to Barron’s. Although Rivian has not yet entered the Chinese market, the huge increase, which came despite despite an 11% YOY decline for all “passenger vehicles sales,” is positive for all EV makers, including Rivian.
That’s because the data indicates that high gasoline prices are indeed spurring huge increases in consumers’ demand for EVs. Moreover, as a result of the increase in gasoline prices, business’ demand for EVs should also surge.
Reservations for Rivian’s EVs as of March 8 had soared to 83,000, representing a 17% increase since the beginning of 2022. Also worth noting, as of November 2021, Rivian had signed a deal to manufacture 100,000 EVs for Amazon (NASDAQ:AMZN).
Rivian’s Q1 Production Target and BNP Paribas’ Note
Despite all the hand-wringing about Rivian’s production issues, the automaker managed to meet its Q1 production guidance, manufacturing over 2,500 EVs during the quarter.
Turning to BNP Paribas’ negative take on RIVN stock, the firm reportedly focused on the company’s ability to meet its production targets and the negative implications of the EV maker’s decision to significantly increase its prices by 19%.
Specifically, BNP Paribas fears that the company will be unable to meet its production targets and warned that the price hikes indicate that the automaker will not generate profits on any of the deliveries that it makes “through” 2024.
On the first point, as I noted in my previous column, I think that, when it comes to EV makers, the Street is overly focused on supply and overlooking the greater importance of demand. In other words, if Rivian receives hundreds of thousands of orders for its EVs and is delivering 20,000 to 40,000 annually, while its production increases meaningfully each year, I don’t believe that investors will care much if it it misses its initial production target by, say, 20% to 30%
Regarding Rivian’s profitability, as supply chains normalize, the chip shortage eases and the company’s production capacity expands, Rivian’s per-vehicle costs are likely to fall. As a result, its profitability will probably rebound. Additionally, I’m sure Amazon and Rivian’s other commercial customers will be willing to pay at least 20% more for their EVs than the price to which they originally agreed.
Because of all of these points, 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.
