Rivian had the honor of being the largest initial public offering of 2021. The $1.1 billion capital raise represents the largest capital raise for a U.S. company since the 2012 public debut of Facebook.
The shareholder returns have not been as sweet as one would expect. Are there any signs that Rivian may make a comeback, or is it a waste of money to invest in this stock?
Rivian: What Is It?
An electric vehicle manufacturer based in California, Rivian manufactures electric vehicles. Currently, its products include the R1S SUV, the R1T pickup truck, as well as the electric van. Additionally, it provides fleet services for vans, all of which operate under the Rivian operating system. Additionally, it offers branded accessories and ancillary services.
How Successful Will Rivian be?
The Rivian brand is designed for adventurers and those concerned about the environment. Furthermore, this company is led by a mission-driven CEO, Robert Scaringe, whose goal is to shift transportation towards more environmentally friendly modes.
An ecosystem of products has been built by the company that may be able to support recurring revenue models in the future. The company provides a charging network and insurance services in addition to its core vehicles.
Rivian is not considered to have a significant competitive advantage. The company currently lacks the resources to produce vehicles at scale and faces heavy competition from rival companies such as Ford and Tesla.
Rivian Stock: Should You Buy It?
When Rivian was at its height, it was worth more than $150 billion. As of now, the company is valued at approximately $32.53 billion. In spite of this, it possessed more than $15 billion in cash and equivalents at the end of Q2 2022. Isn’t it a bargain? It is not necessary.
The Burning Of Cash
Rivian is in a difficult financial position due to its aggressive cash burn. During Fiscal Year 2025, the company will burn through over $21 billion in cash, and it expended $1.6 billion in Q2 2022 alone. Currently, the company has not achieved sufficient revenue growth to justify these expenditures, as the company posted sales of just $364 million in the first quarter.
If Rivian continues to burn through cash without increasing sales volume and production, it will continue to suffer losses. The company’s valuation and the stock price are likely to decline together.
Difficulties In Production
Moreover, Rivian management cited both inflationary pressures and supply chain issues as factors responsible for elevated prices and limited production.
In Rivian’s second-quarter earnings report, the company indicated it would reach its year-end target of producing 25,000 vehicles, however, some investors remain skeptical given that the company has thus far produced only about 6,900 vehicles.
Billionaire George Soros is perhaps among them, having sold millions of Rivian shares for the first time in the second quarter, choosing to invest in rivals Tesla and Ford instead. While this could represent a diversification strategy, it does not represent a vote of confidence in Rivian’s future.
This earnings report follows the announcement that Rivian would be laying off 6% of its workforce in July 2022.
Is Rivian Stock Predictable?
How do analysts feel about Rivian’s stock? There have been 14 comments on its price.
Among the 12-month price targets, a high of $108 is expected, while a low is expected to be $24, with a median target price of $45. It is worth mentioning that out of 21 analysts who follow the stock, only 14 have a buy rating, six have hold ratings, and one has a sell rating.
This Is The Bull Case For Rivian
As one of the first manufacturers to introduce an all-electric pickup truck into the market, Rivian is an industry leader. Due to its first-mover advantage, it is well positioned to capture a large portion of the EV market as consumers convert to electric vehicles. It has received 90,000 pre-orders from customers and has an additional order from Amazon for 100,000 electric vans.
Nevertheless, Rivian is a long way from fulfilling these deliveries, starting on page two of their shareholder letter that any new orders won’t arrive until 2023.
The Rivian Bear Case
The company continues to burn through cash at an alarming rate, with fewer than 7,000 vehicles being produced since production began in May 2022. Regardless of whether the company reaches its 25,000-vehicle target for 2022, it is still a relatively low number compared to other automotive manufacturers.
As an example, Tesla produced over 254,000 vehicles in Q2 2022. Ford sold over 4 million vehicles in 2021. In spite of the excitement surrounding Rivian, the company has to address real-world economic concerns. Inflation and supply chain issues may prevent the company from producing its product, generating revenue, and meeting its obligations.
Rivian 2025 analyst estimates
According to the research, Rivian’s stock price is expected to reach $34.38 in 2025.
It should be noted, however, that a five-year price target is essentially a guess given the current market conditions. The volatility of stock prices, and the uncertain macroeconomic climate. The analysts are likely to revise these forecasts significantly in the future.
In the next 12 months, the 15 analysts following the stock and offering year-out price targets have varying opinions about the company. A median forecast of $50 is shown, ranging from a low of $27 to a high of $83.
Conclusion
Rivian’s previous sky-high valuation has been dramatically eroded, as have many other hyped-up stocks from 2020 and 2021. Even though there are some signs of promise in the long run due to the inevitable adoption of electric vehicles, there are still a number of warning signs.
The share price fell 64% in 2022 alone, so even people with a high-risk tolerance should tread carefully.
David Granahan contributed to the reporting for this article.
Information is accurate as of Aug. 15, 2022.
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