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Rivian Automotive is a US-based electric vehicle company. It has produced over five-passenger pickup trucks and sports utility vehicles and also provides a commercial vehicle platform for electric delivery vans in partnership with Amazon. Some of the popular vehicles developed by Rivian are the R1T pickup truck, R1S SUV, and EDV delivery van.
With rising levels of global warming, there is a lot of buzz going on regarding the adoption of electric vehicles. But the current geopolitical and market situation does not favor the growth of EV stocks much and the Rivian stock too has gone through a rough patch in 2022. The company’s stock, which was valued at more than $140 billion at one point, has lost nearly 74% of its value in the last six months and more than 70% this year so far.
Rivian was once considered the prime competitor for Tesla but today it has wiped away a huge chunk of its investor’s wealth. Still, the market is waiting to hear updates about the company’s long-term plans so as to determine whether it will be worth putting their money in this company at the moment. So, is there any possibility of the Rivian Stock moving up in this inflationary market?
A Lot of Demand for Rivian’s Products
One of the greatest advantages Rivian has over most other EV makers is its diverse base of customers. As of the 9th of May, 2022 the company already had around 90,000 pre-orders for its R1 platform pickup truck and SUV models which is much higher than the 83,000-order update it had provided previously. Notably, these 10,000 new pre-orders were received at a higher average selling price compared to the previous orders. Also, previously it had received its initial order from Amazon for an additional 100,000 of its electric delivery vehicles (EDVs).
Rivian’s models are priced at a higher range than some of the cheapest Tesla models. After the recent price increase, the price of its vehicles now starts at $79,000 for R1T and $84,000 for R1S and then moves up to around $100,000 with a few options. The company’s products are mainly focused on the adventuring consumer and do not really cater to the average suburbanite ones. By doing this Rivian is targeting the niche in which no other EV company has ever penetrated and intends to position itself in a manner so as to gain a solid share in the growing EV market.
Rivian has already produced around 5,000 vehicles in total and expects to produce a total of 25,000 by the end of this year. Upon witnessing the huge demand for its vehicles, the company has been adding manufacturing capacity to meet its production target. Further, by 2025 it plans to another six models priced in a lower range to capture an entirely new segment of customers. Moreover, regarding the preorder from Amazon that segment had also not been touched much by other manufacturers thereby providing the company with a first-mover advantage.
Battery Shortage and Excess Competition
Over the years the EV landscape has changed a lot. According to Rivian in the coming years, the EV sector will heavily rely on the battery supply chain for its growth. Therefore, in order to meet its target production, the battery production in the whole world has to increase by at least 20 times. Considering the current supply chain disruptions and the ongoing shortage of raw materials like lithium, cobalt, nickel or graphite such a leap in production does not seem that attainable.
On top of that, the rising level of competition in the EV market and the emerging number of new competitors in this segment with each passing day is another challenge to the company. These days, with the emergence of a lot of other startups in this market a lot of traditional automotive manufacturers have also started the transition to EV makers. Therefore, even though the EV market will grow substantially over the coming years, it will require a lot on Rivian’s part to make its mark in the market amongst the huge numbers of industry players.
Rivian has sufficient cash to up its production game still the above-mentioned factors are not much in the control of the company. Therefore, it needs to carve out its strategies in a meticulous manner so as to sail through these adverse situations with ease.
Still Generating Losses
Rivian is trying to improve its operations indeed however, apart from the ramping up of production levels there is no such thing that is really attractive about the first quarter financials of 2022 released by the company. Reportedly, Rivian had delivered 1.22K vehicles and had produced 2.55K vehicles. Also, its revenue for the quarter was recorded at $95 million along with a net loss of $1.593 billion representing a quarter-over-quarter improvement of 75.9% and 35.2% respectively.
However, what worried the investors the most was its ridiculously lower level of operating margins. The gross margin of the company is –528.4% and the net income margin is as low as –1,676.8%. This indicates unless any major improvements take place the company won’t be reporting profits and a positive free cash flow anytime soon. Though its liquidity position is still intact if this cash bleeding continues further it might have to face liquidity issues as well. That will not bode well for Rivian stock.
Rivian is an emerging company with lots of prospects. With the growth of the EV sector in the coming days, the company will get a lot of opportunities to declare itself as one of the chief players in the EV space. However, it still needs to work a lot on reducing its expenses and improving margins to provide the investors with their desired return. Therefore, at this point, there is not much incentive to purchase Rivian stock but if you are a long-term player then you can consider Rivian stock a buy.