- Rivian (RIVN) is acknowledging a shortage of electric car batteries may be worse than the chip shortage
- The company still claims it will meet production targets
- Without more clarity, RIVN stock is only for risk-tolerant, long-term investors
Rivian (NASDAQ:RIVN) recently announced that concerns about EV battery availability are real. And it may eclipse the chip shortage that befell the industry in 2021 and continues today. In fact, Rivian CEO, RJ Scaringe, is of the opinion that 90% and possibly as much as 95% of the battery supply chain does not currently exist. Not surprisingly, RIVN stock is down nearly 5% (4.75%) in mid-day trading the day after that announcement.
Rivian went public near the end of 2021. And the timing couldn’t have been worse. The move to risk off assets was just beginning. Other automakers were already beset by supply chain issues. The Russian war on Ukraine has added geopolitical risks to the supply chain. And the Federal Reserve is raising interest rates which, along with already high consumer prices, may squelch demand for Rivian’s vehicles which have a starting price tag of around $67,500.
Taking Ownership in the Battery Wars
If you’ve spent any time digesting the economics of the EV sector, you know that the battery is where the money is. And Rivian has an ambitious plan to build its own batteries which, over time, may be a significant catalyst.
However, Scaringe was quick to note that currently, global cell production is just 10% of what will be needed in the coming decade. That means it will be some time before this vision is a reality. For now, the company is relying on diversification in its supply chain to meet its battery needs.
Rivian Needs to Scale Production
In early April, Rivian announced it had produced 2,553 vehicles and delivered 1,227 vehicles in the first quarter of 2022. The company said that was in line with the company’s projections. And, it said it left the company on track to meet their production target of 25,000 vehicles by the end of 2022.
Considering that RIVN stock climbed 30% after issuing its full-year production guidance in March, perhaps investors felt Rivian was under promising. But with longer term supply chain issues and price inflation in place, this number is starting to feel ambitious. And investors seem to agree. Since Rivian’s announcement, RIVN stock is down 11%.
What About Amazon?
One of the reasons that RIVN stock generated such bullish optimism was its partnership with Amazon (NASDAQ:AMZN). Rivian delivered its first EV delivery van to the company in December 2021. That would be the first of 100,000 vans the company is expected to produce for Amazon. This isn’t surprising since Amazon has a $1.8 billion investment in Rivian.
However, in January, Amazon announced that it was going to have multiple partners in its quest to electrify its fleet. To that end, in the company’s shareholder presentation, Rivian speaks of its partnership with Amazon but did not lay out any production estimates specific to the company.
RIVN Stock Requires Patience and Time
To be clear, the supply chain issues are not, and will not continue to be unique to Rivian. This is a caution flag for an entire sector that just a year ago was looking unstoppable. And in another year or more, it may be again. It’s a frustrating time for investors looking at the EV sector. Because the long-term outlook remains bullish. But the skeptics who pointed out that the EV future was not going to happen right away are proving to be right.
And for now that’s enough to keep me away from Rivian. At least until it proves that it can meet its production targets. That may very well happen in the summer. And if it does I may revisit RIVN stock at that time.
On the date of publication, Chris Markoch 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.