You may have heard the question popping up recently as electric vehicle maker Rivian has seen its once-hot stock price plunge over 80% since its splashy IPO last year: Is Rivian stock a good buy right now?
It‘s an interesting question for investors looking to profit from the rise of EVs while Tesla‘s valuation remains astronomically high. Rivian appears to be the next-best option – an early-stage EV company focused specifically on trucks and SUVs.
But its crashing share price also signals a risky investment amid challenging economic conditions.
So in this article, I‘ll walk through everything potential investors need to know to make an informed decision about whether to buy Rivian‘s battered stock. I‘ll provide essential context on Rivian, share both bull and bear cases, assess some key metrics, and distill it down to actionable guidance on investing in this controversial electric vehicle startup.
Overview of Rivian‘s Business
Before analyzing Rivian specifically as a stock, let‘s shine a spotlight on the core business.
Rivian is an American electric vehicle manufacturer headquartered in Irvine, California, founded in 2009 by CEO Robert "RJ" Scaringe.
Scaringe‘s vision for Rivian is to combine electric powertrains with rugged, adventure-oriented vehicle designs optimized for off-roading and the great outdoors.
The company‘s first two vehicles, launched in 2021, are:
- R1T: Electric pickup truck starting at $67,500
- R1S: Electric SUV starting at $70,000
Both models broke EV range records on initial release, approach 300 miles of range, and boast cutting-edge performance specs paired with innovative features for outdoor activities.
Rivian is often referred to as the "Tesla of trucks" given its positioning squarely around light trucks/SUVs rather than sedans.
For funding, Rivian has raised about $15 billion from prominent investors like:
- Amazon (Rivian is producing 100,000 electric delivery vans for Amazon)
- Ford Motor Company
- T. Rowe Price
- BlackRock
Those deep-pocketed institutional investors provide Rivian financial support, but also present risks around dilution given the potential for further fundraising if cash runs low.
Now let‘s analyze whether Rivian stock makes for a good investment at today‘s prices.
Rivian‘s Share Price History
Rivian completed its IPO in November 2021, debuting on the public markets at $78 per share under the ticker $RIVN.
Its opening valuation of over $77 billion immediately made Rivian the second-most valuable US automaker behind Tesla.
However, as we can see in the chart below, the stock price immediately skyrocketed to unsustainable levels above $170 per share before crashing. It now trades around $15-25 – an 85% plunge from peak to trough.
Data Source: Yahoo Finance
This type of extreme volatility is common among newly-public companies as hype cycles give way to financial reality.
Now trading firmly in penny stock territory, the key question becomes: does Rivian represent deep value for investors, or could it head even lower?
Let‘s first examine the bull case.
Bull Case for Buying Rivian Stock
Despite Wall Street‘s harsh re-rating of Rivian‘s stock over the past year, there remain several reasons to consider investing at such depressed levels:
1. Massive Growth Potential in Electric Trucks & SUVs
BloombergNEF projects the global electric truck market alone will reach $1.87 trillion by 2040. Other estimates suggest the light truck and SUV category combined $7 trillion globally this decade.
Capturing even a modest slice of that huge total addressable market could support an extremely valuable company.
And with Rivian specifically targeting trucks/SUVs engineered for off-roading and adventures, they smartly differentiate from competitors through unique positioning.
The demand seems to be there – Rivian‘s R1T and R1S models sold out initial production capacity within days of unveiling.
2. Production Scaling Underway
Part of investing in early-stage growth stories involves weathering production ramp turbulence. But Rivian is making progress on that front.
The company delivered over 10,000 vehicles cumulatively so far in 2022 – a major milestone – and is adding additional production shifts at its Illinois factory.
Manufacturing output should continue growing quarter by quarter, supporting financial improvements.
3. Compelling Valuation Relative to Growth
Trading near all-time lows around $20 per share, Rivian now sports a market capitalization of about $15 billion (assuming full share dilution).
If the company captures just 2-3% of the projected $7 trillion market for electric trucks & SUVs this decade, it could easily support 5-10x returns on today’s valuation.
The stock seems reasonably priced for early investors willing to take on some risk.
4. Strong Institutional Backers
Rivian counts corporate titans like Amazon and Ford among its biggest financial backers. Their large direct investments signal confidence in Rivian‘s business.
And with over $15 billion raised already, Rivian boasts a substantial financial cushion to see it through market turbulence in coming years as production scales up.
On balance, if you tune out the near-term noise and adopt a long-term outlook, Rivian stock arguably presents a compelling risk/reward tradeoff around today‘s prices.
However, it’s not all sunshine and rainbows. Now let’s examine the considerable bear case.
Bear Case Against Buying Rivian Stock
While the electric truck TAM presents immense upside, investing in pre-revenue manufacturers like Rivian intrinsically carries substantial risk:
1. Production Ramp Uncertainty
Despite bold plans, Rivian has already severely pulled back its production targets for 2022 due to global supply chain issues.
And in such capital-intensive business, uncertainty around scaling production introduces material downside risks. What if constraints persist and output ramps slower than expected?
It demonstrates the razor-thin margin for error startups face. Delayed production plans could necessitate further dilutionary financing that hurts investors.
2. Intensifying Competition
Rivian enjoyed first-mover status with electric trucks and SUVs optimized for adventure and outdoors. But competition is heating up fast.
For example, the red-hot F150 Lightning from Ford now threatens to steal EV truck market share. And GM revealed an electric Silverado pickup and Blazer SUV set to debut soon.
Legacy automakers are pouring billions into capturing the electric truck segment. Rivian’s window of advantage appears limited.
3. Deteriorating Macro Backdrop
Rivian also faces stiff macroeconomic headwinds from inflation reducing discretionary consumer spending power to rising interest rates making financing more expensive.
EV startups already faced slowing demand and today’s conditions only amplify that pressure. The path to profitability steepens.
4. Cash Burn Concerns
Developing electric platforms and scaling production requires massive capital infusions for years before achieving positive economies of scale.
Rivian’s operating cash burn exceeded $1.2 billion last quarter alone – underscoring the precarious cash position facing startups like this. Investors better hope backers keep cutting checks.
While the long-term trend towards electric trucks seems almost inevitable, Rivian still faces menacing near-term threats as a young company navigating difficult conditions. Executional stumbles cannot be ruled out.
Key Takeaways on Rivian‘s Stock
Let‘s synthesize this down to bottom-line advice:
Rivian clearly operates in an attractive niche – electric adventure trucks & SUVs – with immense TAM this decade. In that regard, today’s valuation offers intriguing upside potential.
However, production ramp uncertainty, macro headwinds, cash burn rates and intensifying competition also introduce material downside risks.
The company’s ultimate success remains highly uncertain.
For aggressive investors, Rivian likely presents a worthwhile emerging growth story trading at a reasonable price. But temper your position size to reflect the tremendous volatility ahead.
If considering an investment, think long-term, focus on milestones around production scaling, maintain reasonable return expectations, and size your position commensurately with risk tolerance.
Rivian remains one of the highest risk, highest reward EV stocks available. Avoid overextrapolating near-term price action and brace yourself for one wild ride at the frontier of the electric vehicle revolution!
Let me know if you have any other questions!
