Why do investors buy Rivian Automotive (NASDAQ:RIVN)? The answer is simple. Those buying RIVN stock believe that the vehicle electrification mega-trend will cause turbo-charged growth for this electric truck and van maker driving a big rebound for shares.
However, it’s far from a given that such a scenario plays out. It’s important not to assume that the shift from gas-powered to electric-powered vehicles will turn every electric vehicle contender into a long-term winner.
A recent research note from a sell-side analyst helps to underscore this argument. Recently this analyst has declared that, in the automotive industry, the era of internal combustion engine dominance is ending, and the industry is entering the era of EV dominance.
Yet while this sounds like a positive for Rivian, it is in actuality a negative. Let’s dive in, and find out why.
| RIVN | Rivian Automotive | $15.00 |
Why the Trend May Not be its Friend
In a research note released this week, Bank of America analyst John Murphy argued that the U.S. automotive industry has reached a turning point.
With EVs making up a plurality of new vehicle launches, and EVs and hybrids combined representing a majority of new vehicle launches, ICEs are entering the rearview mirror.
Again, like I mentioned above, at first this sounds like something that strengthens the bull case for RIVN stock. ICEs are out, EVs are in, so this early-stage name in the industry is the verge of its liftoff moment.
Unfortunately, reading through Murphy’s take on where he thinks the auto industry is headed, one quickly realizes how this turning point may exacerbate existing problems with Rivian.
Why? It’s not as if upstarts like Rivian, plus established market leaders like Tesla (NASDAQ:TSLA) are the culprit behind this big expansion in available EV offerings.
Rather, this results from “old school” U.S. and European automakers accelerating their pivot towards a primarily-electric fleet.
Admittedly, this development may seem like an even greater threat to sedan and SUV-focused EV upstart Lucid Group (NASDAQ:LCID), but don’t assume Rivian’s focus on the truck and van market mitigates this risk.
New Competition on the Horizon
In past coverage of RIVN stock, I have discussed key existing competitive threats to the company. These include the threat posed by Ford (NYSE:F), interestingly enough an early backer of Rivian. Ford’s F-150 Lightning not only stands to give Rivian a run for its money in the battle to dominate the EV pickup truck space.
The Detroit automaker’s trucks also have a lower sticker price, and qualify for the full EV tax credit. Along with Ford, Tesla’s Cybertuck, if/when it is released, could also give it a competitive edge.
However, while these are the key competitors to Rivian today, in line with the above-mentioned “turning point” of EV dominance, offerings from other incumbent automakers stand to threaten Rivian’s future growth.
General Motors (NYSE:GM) has unveiled an EV version of the Chevy Silverado pickup. This vehicle handily beats Rivian’s R1T in terms of driving range. According to one automotive reviewer, it’s also comparable to the R1T in many other aspects, at a much lower starting price.
Stellantis’ (NYSE:STLA) Ram division is also ramping up its electric offerings. The launch of the Ram ProMaster EV, set for later this year, means greater competition for Rivian’s commercial van business.
Bottom Line: Vulnerable to Further Price Declines
Don’t get me wrong. It’s not as if the emergence of even more competition, as the auto industry begins to enter an all-electric era, leaves Rivian doomed for disaster.
It may, however, decrease the chances that the hard-hit EV startup, still contending with around $1.5 billion in quarterly cash burn, soon starts to really scale up production, to a level that enables the company to narrow its losses, justifying a move to higher prices.
For now, growth and profitability issues with Rivian appear more likely than not to persist. Continued heavy cash burn suggests there will be greater-than-expected shareholder dilution (from the sale of new RIVN shares) down the road.
All of this leaves RIVN stock vulnerable to further price declines. Hence, making this EV stock one to continue avoiding.
RIVN stock earns a D rating in Portfolio Grader.
On the date of publication, Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
