- Rivian (RIVN) stock trades at a nosebleed valuation despite selling-off profusely
- Supply-chain bottlenecks have started creeping in
- A potential Ford exit will significantly weigh down RIVN stock
Rivian Automotive’s (NASDAQ:RIVN) fourth-quarter results indicate the same problems that have plagued most EV startups. The EV pickup truck specialist has had trouble scaling production due to supply bottlenecks. Additionally, the inflationary cost pressures have led to wider losses and will impact pricing decisions. Despite the glaring issues with the business, RIVN stock trades at a nosebleed valuation which is hard to justify.
Rivian went public in November last year to much fanfare. It quickly became one of the most valuable EV companies globally, with over $150 billion in market capitalization. However, since then, the stock has fallen off a cliff, shedding over 50% of its value. It still trades at a preposterous valuation, which is pertinent considering how frothy the EV market has been. Nevertheless, its underlying business has plenty of risks and challenges which weaken its long-term outlook.
Recent Earnings Report Spells Trouble
Rivian’s fourth-quarter results were like a broken record. An EV startup running into production issues has been a familiar sight for several years. During all of last year, the company was able to produce a few thousand vehicles. Its management forecasts production at 25,000 vehicles compared to the previous 50,000 estimates. However, even the 25,000 vehicles target seems like a stretch. The management mentioned how most supply-chain troubles would persist throughout this year.
It achieved $54 million in sales and a non-GAAP net loss per share of $2.43 during the fourth quarter, both of which came in below the consensus estimates. The top-line results came in 11% lower than Wall Street’s revenue forecast of $60.7 million, while its non-GAAP net loss per share was significantly higher than the $1.97 estimate.
Nevertheless, its weak capacity utilization isn’t slowing down its expansion efforts as it plans to spend $2.6 billion this year on CAPEX. It will begin work on developing its Georgia factory and aims to scale its Illinois factory to an impressive 200,000 units a year. Moreover, it has the dough for these plans to come to fruition. It reported $18.1 billion in cash on its balance sheet. However, that number continues to shrink due to its massive cash outflows. It spent $2.6 billion last year in net cash from operational activities.
The Ford Problem
Ford (NYSE:F) was the first major company to align with Rivian in 2019. Both companies were jointly developing a car that allowed Ford to take an 11.4% stake in Rivian. However, what was a feather in the cap for Rivian, could now become a major problem for the company.
Ford plans to go all-in with its EV plans and wants out of its partnership with Rivian. Though Ford canceled its agreement, it could not sell its stake due to a 180-day lockup period. When the period is up in May later this year, Ford can sell off its stake in Rivian and generate over $4 billion in proceeds. Moreover, it will also push down RIVN stock for several months, given its time to dispose of the hefty stake.
Moreover, with Ford looking to ramp up its EV production, that money will be of great value. It’s still unclear what it decides to do with its stake; however, a sale would give it enough to cover its $5 billion EV expenditure this year entirely.
Final Word On RIVN Stock
With the EV industry moving past the initial phases, producers must get their products out the door. Investors are getting impatient, which is evident with the choppiness in EV stocks. Rivian is among the long list of EV companies facing immense challenges in getting a grip on their production schedules.
Thus far, its production has been anemic, and estimates seem ambitious at this stage. On top of that, the business is losing money as it looks to ramp up production. Though it won’t be a problem in the interim, the mounting losses can present some major liquidity issues as we advance. Moreover, the Ford exit will result in substantial selling pressure in the foreseeable future. Therefore, it’s best to avoid RIVN stock.
On the date of publication, Muslim Farooque 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