Unfortunately, the shareholder returns haven’t been as sweet. Could Rivian make a comeback, or is an investment in this stock dead money?
What Is Rivian?
Rivian is a U.S. electric vehicle manufacturer based in California. Right now, it sells its R1S SUV and R1T pickup truck. It also provides fleet services for vans, all of which run on the Rivian operating system. It also sells branded accessories and ancillary services.
Will Rivian Be Successful?
Rivian has developed a unique brand targeted at adventurers and environmentally conscious consumers. It’s run by a mission-driven CEO, Robert Scaringe, whose overarching goal is to shift transportation to more environmentally friendly alternatives.
The company has built an ecosystem of products that could support a recurring revenue model in the future. It has its charging network and insurance services in addition to its core vehicles.
However, Rivian arguably doesn’t have a meaningful competitive advantage. It currently lacks the resources to produce vehicles at scale and faces heavy competition from rivals such as Ford and Tesla.
Is Rivian Stock a Buy?
Rivian, at its height, was a company worth more than $150 billion. Now, the company is valued at roughly $33 billion. Yet, it has more than $15 billion in cash and equivalents as of Q2 2022. It must be a bargain, right? Not necessarily.
Rivian is in a difficult situation because of its aggressive cash burn. The company is expected to burn through over $21 billion in cash through fiscal year 2025, and it spent $1.6 billion in Q2 2022 alone. Currently, there isn’t enough revenue growth to justify this spending, as the company posted revenue of just $364 million in sales in the quarter.
If Rivian continues to burn through cash so aggressively without seeing a massive increase in sales volume and production, it will continue to lose money. Its valuation and the stock price are likely to fall in tandem.
Rivian management also cited both inflationary pressures and supply chain issues as reasons for elevated costs and limited production — factors that may take some time to resolve.
In Rivian’s Q2 2022 earnings release, the company maintained that it would reach its year-end target of producing 25,000 vehicles, but it produced just 4,401 in the second quarter, according to the shareholders letter. As a result, some investors remain skeptical.
Billionaire George Soros is perhaps among these, as his investment company sold millions of Rivian shares in the second quarter and instead invested for the first time in rivals Tesla and Ford. While this could be just a diversification strategy, it doesn’t register as a vote of confidence for Rivian.
The earnings report followed the late July 2022 news that Rivian would be laying off 6% of its staff.
What Is the Forecast for Rivian Stock?
What are analysts saying about Rivian stock? Twenty analysts have weighed in on its price.
The estimates range from a high of $83 to a low of $27, with a median 12-month price target of $53.20. Of the 20 analysts that follow the stock, 13 gave a buy rating, six have hold ratings and one says to sell the stock.
The Bull Case for Rivian
Rivian is one of the first manufacturers to deliver an all-electric pickup truck successfully. Given its first-mover advantage, it has the potential to capture a healthy chunk of the market as consumers transition to EVs. The company had 98,000 pre-orders already lined up for R1s as of June 30, plus an additional order of 100,000 electric vans from Amazon.
However, Rivian is a long way from fulfilling these deliveries.
The Bear Case for Rivian
Rivian continues to burn through cash at a rapid rate, and it had produced just 8,000 vehicles from the start of production through June 30. Even if the company were to somehow reach its 25,000-vehicle target by the end of 2022, this is still very few compared to other companies in the automotive industry.
Tesla, for example, produced over 254,000 vehicles in Q2 2022, while Ford sold nearly 4 million vehicles in 2021. In spite of all the excitement surrounding Rivian, the company still has to deal with real-world economics. If inflation and supply chain issues don’t allow the company to produce its product and generate revenue, it may run out of money before it can fulfill its promise.
Analyst Estimates for Rivian 2025
Overall, the Rivian stock price prediction for 2025 is $37.28.
However, a five-year price target is essentially a guess, given market conditions, stock price volatility and an uncertain macroeconomic environment. Analysts will likely heavily revise these forecasts over the coming years.
Over the next 12 months, the 20 analysts following the stock and offering year-out price targets have a wide range of opinions on the company. Forecasts range from a low of $27 to a high of $83, with a median forecast of $53.20.
From its previous sky-high valuation, Rivian has taken a massive hit, as have many other hyped-up stocks from 2020 and 2021. Although the company shows some promise in the long term due to the inevitability of EV adoption, there are still a lot of red flags.
With shares down over 62% in 2022 alone, even those with a high risk tolerance should approach it cautiously.
Information is accurate as of Sept. 20, 2022.
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