Electric vehicle (EV) manufacturer Rivian Automotive (NASDAQ:RIVN) has to compete in a crowded market for clean energy vehicles. Yet, Rivian doesn’t seem willing to offer reduced-priced EVs in the near future. So, even if some RIVN stock traders are pleased with Rivian Automotive’s ambitious production outlook, it’s wise to treat the company and the stock with caution.
Rivian Automotive has never been known as a budget vehicle maker. Still, with so many rivals in the EV manufacturing field, it would make sense for Rivian’s management to be more flexible and responsive to the customers’ needs.
Ultimately, I still like Rivian Automotive for the long term. Yet, in the world of financial trading, timing is everything. Just because you might happen to believe in Rivian’s future as a premier automaker, this doesn’t mean you should enter into a hasty trade that you may regret later on.
Don’t Confuse Production With Profits
Here’s something that made many of Rivian Automotive’s shareholders happy about the company’s first-quarter fiscal 2023 report. Rivian maintained its full-year 2023 guidance of producing 50,000 EVs.
It’s fine that Rivian Automotive’s management is optimistic about the automaker’s ability to manufacture vehicles quickly. Bear in mind, though, that Rivian produced 9,395 vehicles in Q1. At that rate, the company isn’t on track to reach its 50,000 vehicle target for the year.
Besides, even if Rivian Automotive manages to produce 50,000 EVs, this doesn’t mean the company will sell that many vehicles. Compared to 9,395 vehicles produced in Q1, Rivian delivered 7,946
Also, the company posted $661 million in sales during the quarter, missing Wall Street’s estimate of around $664 million. In addition, Rivian Automotive remains unprofitable, having reported a net earnings loss of $1.79 during the first quarter.
EV Pricing Strategy Could Be Problematic for RIVN Stock
Let there be no confusion about this. Rivian Automotive CEO R.J. Scaringe envisions his company’s vehicle pricing as being on an uptrend. Scaringe reportedly asserted, “Given the data that we have on customer behavior, the aggregate result we see is a continued upward shift in” average selling prices (ASPs).
This isn’t necessarily the ideal pricing outlook for Rivian Automotive, as sticky inflation and recession anxiety are prompting many EV buyers to consider their budgets. Since the Rivian R1T model starts at $73,000 and the R1S model starts at $78,000, it’s fair to say that these aren’t the most budget-friendly vehicles available today.
To justify Rivian Automotive’s high EV prices, Scaringe stated, “These are the products that are building our brand. They’re not meant to sell hundreds of thousands of units.” It’s going to be difficult to build Rivian’s brand, though, if the company’s vehicles are unaffordable for many middle-class Americans.
On the topic of Rivian Automotive’s questionable pricing strategy, Third Bridge analyst Orwa Mohamad issued a well-considered warning to the automaker. Rivian, according to Mohamad, “needs to be careful not to increase its price tag too much while more established competitors are rapidly gaining momentum in the market.”
So, Is RIVN Stock a Buy Now?
Scaringe stated that Rivian Automotive’s near-term plans don’t “necessarily” involve “lower prices on the things we’re offering today.” This signals the company’s lack of flexibility on vehicle pricing, and that’s likely to pose a major problem for Rivian Automotive.
Furthermore, Rivian Automotive’s ambitious production schedule is fine, but don’t jump to any conclusions about the company’s future sales. Rivian could remain unprofitable for a while, and the company’s EVs are pricey. Consequently, I definitely don’t consider RIVN stock a buy right now. Even if you believe in the company for the long term, now isn’t the time to invest in Rivian Automotive.
On the date of publication, David Moadel 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.