Rivian (NASDAQ:RIVN) stock has faced several challenges in scaling up its EV production and delivery capabilities.
In this article, we will discuss three reasons why investors should sell Rivian’s stock and look for other opportunities in the EV space.
RIVN Stock in Overvalued
Rivian went public in early November 2021 valued at $127.3 billion, making it the second-largest automaker in the US by market capitalization, behind only Tesla. However, it does not take an expert to understand how Rivian’s valuation was punching well above its weight.
The company at the time had hardly generated any revenue but was worth billions of dollars. Fast forward to 2023, Rivian has generated more than $3.6 billion in revenue in the last twelve months, based on robust delivery.
While Rivian is producing and delivering vehicles, the amount sold is still not enough to warrant the company’s $17 billion market capitalization.
Not to mention, Rivian has yet to reach bottom line profitability. Last year, the automaker lost $6.7 billion, significantly depleting its cash balance $18.1 billion in 2021 to $11.6 billion at the end of 2022.
Competition Is a Problem
Another reason investors should sell Rivian is that the company faces fierce competition that not only has more experience but also more economic resources at their disposal. More concretely, Volkswagen, Toyota and Ford have the flexibility to offer a wider range of models, prices and features to cater to different customer segments and preferences.
Rivian’s R1S has a starting price of $78,000, which could limit the model’s appeal and demand.
Outside of the typical western automakers, Lucid will eventually have to contend with the rise of Chinese automakers, including China’s formidable BYD, which has even stolen Tesla’s crown as the largest EV maker in the world by sales in 2022.
Rivian is too niche to scale
Unfortunately, the third reason investors should sell Rivian’s stock is related to the prior two: Rivian may be too niche in order for the company to scale and compete with larger automakers.
The EV maker began its journey by marketing a product for those who enjoy taking their vehicles on road trips or to remote areas and also feel good about being environmentally conscious. While this kind of customer set may sound interesting for a new entrant into the EV market, the company has probably siloed itself off, limiting its future growth potential.
Yes, 2023 quarterly deliveries for Rivian’s flagship vehicles have increased beyond initial analyst estimates, but the EV market is likely to struggle into 2024, potentially stalling delivery in the future.
On the date of publication, Tyrik Torres 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.
