Both a legacy automaker and a fast-growing electric vehicle (EV) startup issued recalls today. Ford (NYSE:F) and Rivian (NASDAQ:RIVN) have recalled 1,175 and 207 EVs, respectively. The two companies are industry leaders when it comes to electric trucks.
Ford’s recall concerns its line of Mustang Mach Es. According to a notice from the the National Highway Traffic Safety Administration (NHTSA), “the right-rear axle half shafts may have been manufactured improperly, allowing the half shaft stem to break under load.” AutoGuide reports that Rivian’s recall is due to a problem with seatbelts attaching to a car’s B-pillar. While F stock has reacted poorly to this news, RIVN stock has been rising today.
After falling this afternoon, RIVN has already pulled back into the green. As of this writing, it is up 4.5% for the day and looks poised to climb even more. EV recalls are commonplace for automakers, and they have only increased as EV popularity and production has soared. If Rivian’s performance today is any indication, the stock won’t feel this slight setback at all. However, this news does warrant a closer look as it helps illustrate why RIVN stock is worth watching for investors. Let’s dive in.
The Road Ahead for RIVN Stock
It’s easy to see that this recall news is much worse for Ford than for Rivian. One company is recalling over 1,000 EVs because an important car component may be unable to handle pressure. The other is recalling just over 200 because of a potential problem with seatbelts. Barron’s reports that both companies will inspect the parts for all recalled vehicles and replace them free of charge. But whichever way we look at it, this news is much better for Rivian than for its larger rival. When we consider that, it’s not hard to see why RIVN stock has been rising today while F has been falling.
Fans of EV technology know all too well that recalls are common for the sector. Tesla (NASDAQ:TSLA) has issued multiple recalls in 2022 alone, none of which have pushed shares down. And while it’s easy to assume that a sector-leading company can shake off a product recall, Rivian is much smaller than Tesla. The fact that RIVN stock rose today in the face of recall news says a lot about the company. Specifically, it implies that Rivian is a company that can compete with Tesla.
Like most EV stocks, RIVN has had a difficult year. But some prominent investors, including Ray Dalio, David Einhorn and George Soros, have taken large positions in it. Also in the Rivian bull club is InvestorPlace Senior Analyst Luke Lango, who recently issued a multi-year bull thesis on why he believes the company is destined to help usher in the EV revolution. “A simple 20X price-to-earnings (P/E) multiple on that implies a potential late 2020s valuation target for Rivian of $200 billion.” he notes. “That’s nearly 10X the current market cap, meaning we see Rivian stock as a potential ten-bagger.”
Most investors probably weren’t worried that the recall would harm RIVN stock. But now they have the reassurance they need that the company can hold its own against temporary production tailwinds. As Lango predicts, shares should soar as the EV sector prepares to turn a corner.
On the date of publication, Samuel O’Brient did not hold (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.
Samuel O’Brient has been covering financial markets and analyzing economic policy for three-plus years. His areas of expertise involve electric vehicle (EV) stocks, green energy and NFTs. O’Brient loves helping everyone understand the complexities of economics. He is ranked in the top 15% of stock pickers on TipRanks.
