Rivian Automotive (RIVN) rolled out the first all-electric pickup truck, the R1T, on Sept. 14, 2021. On Nov. 9, 2021, the much-anticipated RIVN IPO priced strong. The EV startup had a monster IPO, however shares have fallen well below their IPO price recently, amid an overall market downturn. Rivian now has a market cap of $25 billion. Is Rivian stock a good buy?
The Rivian IPO priced an upsized 153 million shares at $78 a share Nov. 9, 2021, above the expected range. The RIVN IPO raised $11.9 billion, giving Rivian an initial valuation of roughly $77 billion. Shares soared to 179.47 on Nov. 16, 2021, but then sold off sharply over the following weeks and months.
Rivian picked a good time to go public, as it is among the few startup EV makers actually producing and delivering vehicles. Lucid Motors (LCID) more than doubled in the first four months after going public in July 2021, as it began deliveries. LCID stock came public via a SPAC merger. LCID stock has since pulled back to around $16.
Rivian announced Dec. 16, 2021, that it will open a vehicle assembly and battery plant near Atlanta. The $5 billion project is slated to break ground in the coming months.
On May 2, Rivian and Georgia officials announced a $1.5 billion state and local incentive package for the EV maker that includes tax credits, according to a Reuters report.
However, local residents oppose the new factory, saying they were assured in 2017 that the area would remain largely rural.
In response, on Feb. 22, 2022, Georgia officials said the state is taking over the controversial development project, which will allow officials to bypass local rezoning hearings. Georgia will take ownership of the site, to “streamline” the development process, according to a local report.
On May 25, the Atlanta Journal-Constitution reported that a Morgan County board voted 4-1 in favor of a property rental agreement that’s the centerpiece of the $1.5 billion incentive package offered to Rivian.
The agreement means Rivian will rent the land where the factory will be built and won’t have to pay property taxes on the nearly 2000-acre site.
Rivian will bring in a new chief operating officer, according to a TechCrunch report, citing an internal email first reported by Bloomberg. Frank Klein will become COO on June 1. Additionally, Charly Mwangi, the head of manufacturing engineering, is leaving Rivian.
Rivian is also redrawing its organizational chart. The biggest change: It’s dividing its commercial business with one group focused on its B2B vertical and the other on its B2C vertical. Jiten Behl will lead the B2B business, which includes commercial vans and Rivian’s relationship with its flagship customer, Amazon.
Rivian has not yet named who will lead its B2C business.
Rivian Files Lawsuit Vs. Seat Supplier
Rivian filed a lawsuit on March 9 against Commercial Vehicle Group, alleging that the seat supplier violated a contract by nearly doubling prices that Rivian says the two companies initially agreed to, according to a May 16 Wall Street Journal report. The seats are for Rivian’s commercial vans bound for Amazon, its key client.
Commercial Group disputes Rivian’s claim, the report said. The company says the price hike is due to Rivian’s multiple revisions to the product.
Rivian warned in the complaint that if the dispute is not resolved it may be forced to shut down the commercial van program.
RIVN shares fell 7% on the news on May 16.
Ford Sells Chunk Of Rivian Stock
Late on May 13, Ford sold 7 million RIVN shares at a price of $26.88. That’s on top of the 8 million it sold on May 11. That means Ford’s stake has fallen to just under 10%, or 86.9 million shares. Ford’s stock sales have pushed RIVN shares even lower, as the embattled EV startup missed quarterly earnings.
Ford’s move is not entirely a surprise. Several months ago, Ford vacated its seat on Rivian’s board of directors.
Additionally, on Nov. 19, 2021, Automotive News reported Ford and Rivian are scrapping plans to make an electric vehicle together. Ford originally announced its intention to make a Rivian-powered EV in 2019 when it first invested $500 million into the startup. Ford and Rivian have already canceled a vehicle they planned to make for the Lincoln luxury brand in 2020.
Amazon Reveals 18% Stake In Rivian
The Amazon (AMZN)- and Ford-backed Rivian’s R1T beat Tesla and General Motors auto to the punch, as the EV market for electric trucks heats up. But production has been slow, while its R1S SUV has largely been pushed out to spring 2022.
Rivian makes its vehicles at its plant in Normal, Ill. The plant has a production capacity of 150,000 units annually.
The company is prioritizing production of electric vans for Amazon, according to a recent Bloomberg report. Amazon has ordered 100,000 of Rivian’s electric vans. And while Rivian’s R1T pickup has grabbed headlines recently, Amazon’s vans are more likely to be revenue drivers in the near term.
Amazon said on Feb. 2, 2022, that it had a roughly 18% stake in Rivian. However, Amazon is also looking elsewhere to electrify its fleet, On Jan. 5, 2022, Amazon and Stellantis (STLA) said they’re are partnering to develop vehicles with Amazon software in the dashboards. Stellantis will also make electric delivery vans for Amazon.
Rivian Hikes Prices
Rivian hiked the price of its R1T electric pickup around 17%, which will increase the base cost to about $78.975 from $67,500. The price of the R1S SUV will jump about 20%, bringing the new base price to about $84,000 from $70,000. All prices are before federal tax credits of $7,500.
The price increases apply to existing orders. RIVN stock fell 25% in the two days after the price hikes were announced. Scaringe said the price increases are due to rising costs of the components and materials that go into building its vehicles.
Rivian is also scrapping the 5-seat R1S electric SUV. It will only be offered in a 7-seat version.
Expansion Risks Ahead
D.A. Davidson analyst Michael Shlisky said in a May 31 note to clients that like most EV startups, there have been “bumps in the road” as Rivian ramps up production.
“While we loved the truck we tested, we are worried that negative headlines will outnumber the positives in the months to come,” he said. Shlisky initiated coverage with an Underperform rating and a price target of $24.
Shlisky said Rivian’s vehicles are targeted to high-end customers for now. The company plans to eventually offer less-expensive models. However, Shlisky says Rivian’s plans to enter lower-priced categories and geographies may present a brand problem.
“Future plans to reach a mass-market audience with smaller and/or cheaper vehicles offer volume and margin promise, but also have the potential to bring confusion on the meaning of the Rivian brand to the high-end customers,” he wrote. “In addition, plans to take the brand global are logical, in our view; that said, pickup trucks and large SUVs are less-popular in global markets than in the U.S.”
Road To Ramp-Up ‘Choppy’
Morgan Stanley’s Adam Jonas initiated Rivian coverage in December 2021, with an outperform rating and a price target of $147.
Jonas still believes Rivian is “‘the one’ that can challenge Tesla.” However, in a note to clients Jan. 26, 2022, Jonas said: “The road to ramping production will be choppy, but we expect largely due to supply rather than demand.”
Jonas said Rivian’s stock decline is a “reality check” of the impact of bottlenecks and other growing pains.
That said, Jonas said in a March 25 note that while fiscal 2022 is a year of challenges related to ramping production, he is confident in Rivian’s strategy, including the entire value chain from “up to the mine down to the delivery of an Amazon package to you front door or a back-country excursion.”
Jonas believes Rivian’s joint ventures to secure a greater supply of cells and enabling materials to make battery packs in-house is what sets it apart from legacy automakers that are expanding their EV offerings.
“Over time, we believe investors will reward those EV makers that can control their own destiny with battery supply at scale,” he wrote.
Jonas adds that the current share price significantly underestimates the strategic value of Rivian’s relationship with Amazon.
JPMorgan has an $85 price target for Rivian stock and an overweight rating.
However, in a March 31 regulatory filing, Rivian raised a few red flags. It said Covid and the war in Ukraine had significant impact on its business, “from facility construction to equipment installation to vehicle component supply.”
Management also said it expects the “very sizable increases in recent months in the cost of key metals, including lithium, nickel, aluminum, and cobalt” to persist.
Furthermore, it stated that rising oil prices have resulted in “significant increases in freight charges and raw material costs.”
And the global chip shortage continues to be a problem.
“We do not have long-term agreements with all of our semiconductor chip manufacturers and suppliers,” management said. And if these manufacturers or suppliers become unwilling or unable to provide an adequate supply of semiconductor chips, Rivian says it would not be able to quickly find alternative sources.
Production Picks Up In Q1
Rivian produced 2,553 vehicles in the first quarter, including a mix of the Rivian R1T pickup truck, R1S SUV and commercial vans headed to its main customer, Amazon.
The company said in a statement Tuesday it’s on track to meet its production goal of 25,000 EVs for 2022, but that’s half it’s original estimate of 50,000. Rivian delivered 1,227 vehicles in the first quarter.
Rivian’s production challenges earlier this year forced the EV maker to revise estimates.
Rivian says it doesn’t expect to be profitable for the foreseeable future. The company intends to use net proceeds from the Rivian IPO for working capital, to fund growth and for other general corporate purposes.
CEO Scaringe said at a Wolfe Research conference on Feb. 24 that production ramp-up at Rivian’s Normal plant is “absolutely making progress,” but supply-chain issues are still slowing production.
Scaringe said the global semiconductor chip shortage is the “most painful” constraint in ramping up production.
More Delivery Delays
On June 11, Rivian Forums reported some Rivian truck reservation holders had received an email indicating more delayed deliveries. Some who had an April-May delivery date were told they’d have to wait until April-May, other until October-December.
The company reportedly gave two reasons: supply-chain issues and service-infrastructure availability.
“As we’ve continued to navigate a tight supply chain, we’ve had to reduce complexity wherever possible, including prioritizing certain build combinations over others,” an email provided to Rivian Forums reported. “We continue to prioritize deliveries in locations where service infrastructure is in place so that we can provide the full ownership experience to Rivian owners from day one.”
The company reiterated its expectation to produce 25,000 vehicles this year in its quarterly report, as it grapples with supply-chain issues and production slowdowns.
Rivian lost $1.77 per share in Q1 vs. a loss of $4.10 a year ago. It had sales of $95 million. There is no year-ago revenue. FactSet had expected a loss of $1.41 a share on sales of $132.7 million.
Rivian reported negative free cash flow of $1.452 billion in Q1 vs. $802 million a year earlier. It ended Q1 with $16.971 billion in cash and cash equivalents.
The EV startup has more than 90,000 R1 EV preorders as of May 9, including more than 10,000 new orders since a March price increase. It also has produced 5,000 EVs since the start of production, representing a big jump in the current quarter.
For Q1, Rivian previously disclosed that it had produced 2,553 EVs and delivered 1,227 EVs.
Wedbush analyst Dan Ives had some sobering words about Rivian. “Let’s call it like it is, Rivian has been a train wreck since its IPO and an overall black eye for the EV industry,” he wrote in a note to clients May 11.
“We believe Rivian from a core engineering and design perspective along with the Amazon commercial relationship has potential to be a major EV stalwart over the next decade,” he said. “However, for that to happen, they need to start delivering models to customers and stop the excuses.”
Wedbush maintains its Outperform rating on RIVN stock “as we believe Rivian is a long-term winner in EVs.” However, it lowered its price target from $60 to $30, reflecting a lower multiple and reduced numbers.
Battery-Supply Issues Persist
At its first shareholder meeting on June 6, Rivian said it has $17 billion of cash on hand as of March 31, 2022, which it hopes can support the 2025 launch and ramp of its R2 vehicle platform. It also said it had a backlog of over 90,000 R1 preorders.
However, Rivian cautioned that battery supply would be challenging over the coming decade, “with the need for battery production capacity in the world to expand by 20 times during this time.”
As a result, Rivian says it’s focused on building partnerships with cell providers and upstream material suppliers.
The embattled EV maker has an RS Rating is just 8 out of a best-possible 99. Institutional investors hold around 35% of its stock. As of March 2022, 769 funds have a stake in RIVN stock. Its Accumulation/Distribution Rating is D+, indicating moderate selling of its shares among institutional investors.
Rivian Faces Fierce EV Pickup Competition
The Rivian R1T is the first electric pickup to market, but not the last.
“Several traditional automakers and EV new entrants have announced plans to launch EV pickups in the 2021 through 2024 time frame,” Goldman Sachs told clients in April 2021.
GM plans to begin deliveries of its high end EV Hummer later this year. General Motors will follow up with a Silverado EV as well as a GMC electric pickup for 2023. Ford’s first electric pickup, the F-150 Lightning, is coming in spring 2022. It has a targeted range of 300 miles vs. the Rivian’s truck’s 314-mile range per charge.
Rivian Vs. Tesla
Meanwhile, Tesla CEO Elon Musk said Cybertruck production won’t begin until “hopefully” sometime in 2023. That could reflect issues with mass producing 4680 batteries, key to making the Cybertruck and the long-delayed Semi and Roadster viable.
Tesla filed a lawsuit against Rivian and a number of former Tesla/current Rivian employees in July 2020 in California alleging trade secrets misappropriations. It recently added to that lawsuit. Rivian says it will fight the charges vigorously.
Rivian Throws Weight In Large SUVs
In the full-size EV SUV space, Tesla led the way with its Model X. But a Model X refresh has gone slowly, while sales are relatively small. The Rivian R1S will have an opportunity to make inroads. But GM is coming out with the luxury Cadillac Lyriq this spring.
In the commercial market, Rivian has a deal to make 100,000 electric delivery vans for Amazon.com. It plans to deliver the EDVs to Amazon by 2025. Rivian says it expects to deliver at least 10 vehicles in December 2021. But Rivian’s reliance on one big customer is risky.
GM and Ford have begun shipping out EV delivery vans to customers.
Rivian’s direct-to-customer model allows it to manage all sales, deliveries and service operations in-house without relying on a franchised dealership network or other third parties. So far, 22 states and the District of Columbia allow Rivian to sell directly to consumers. Those states include California, Florida, Arizona and Illinois.
But several states are challenging Rivian’s DTC model, citing dealership laws. In March, several auto dealership groups in Illinois sued both Rivian and Lucid over their DTC sales model, which they say is illegal.
Is Rivian Stock A Buy?
Deliveries are getting underway, meaning Rivian will start generating revenue, with rapid growth from essentially zero seen. But heavy losses are likely to continue for some time.
Until RIVN stock has some sort of track record following the Rivian IPO, investors won’t have a clear buy point.
Bottom line: Rivian stock is not yet a buy. RIVN stock plunged after missing earnings on March 1o. Shares are trading well below their IPO price at around 26. Its RS Rating is just 8 out of a best-possible 99. But keep an eye on this intriguing EV startup as it works through production ramp-up issues.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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