Avoid Rivian Stock. Even Joe Biden’s China Tariffs Won’t Save the Day.

Stocks to sell

Rivian Automotive (NASDAQ:RIVN) and Rivian stock got a tremendous boost recently after news surfaced that the Biden administration was planning to raise tariffs on Chinese EVs imported into the U.S. 

The tariff rate is currently 25%, but is expected to increase fourfold to 100% soon. Biden wants to add a 2.5% tariff on all auto imports to the U.S. 

The news sent U.S. EV stocks higher. Rivian’s share price closed trading on May 10 at $9.99. By May 14, it was up 12%. Unfortunately, the momentum didn’t last, and most gains were lost in subsequent days. 

Rivian needs more than tariff protection to survive in the long term. Down 52% year-to-date, it’s lost a considerable amount of its market value since trading around $130 in November 2021. 

If anything, the Biden administration’s tariff increase only prolongs the inevitable: either it shuts down operations or sells itself to a much stronger auto manufacturer. 

Either way, RIVN stock remains something to avoid. Here’s why. 

Losses are Losses

Rivian bulls argue it slows the company’s losses or, at the very least, avoids unnecessarily accelerating them. Maybe, but investors won’t know if this is accurate until Chinese EVs show up on American soil in significant numbers. That’s a long way off. 

Rivian lost $1.45 billion, or $1.48 a share, in Q1 2024, $130 million higher than a year earlier. On an adjusted basis, it lost $1.24 a share, nine cents worse than the analyst estimate. 

Bulls will also point out that the first quarter’s adjusted earnings before interest, taxes, depreciation and amortization fell by $222 million in Q1, 22% less than Q1 2023, to $798 million

Further, its loss per vehicle dropped by $4,000 in the first quarter to $39,000, down from $43,000 in Q4 2023 and $28,000 less than in Q1 2023. 

“‘We continue to move closer to making money on every vehicle we sell,’ Chief Financial Officer Claire McDonough said on the call. Rivian expects ‘meaningful improvement’ in gross profit during the second half of this year, culminating in positive gross profit in the fourth quarter,” MarketWatch reported the CFO’s comments from the Q1 2024 conference call.

However, one only needs to look at the balance sheet to understand how financially underwater Rivian has gotten. As of March, its accumulated deficit cracked the $20 billion mark, up from $18.56 billion at the end of December.

If it wants to turn the accumulated deficit into a surplus, it will have to do much more than make a gross profit from each vehicle. 

Ken Griffin’s Not Wrong

The billionaire investor recently said at the Qatar Economic Forum that the Biden administration’s tariff increase was a terrible blow to the American EV buyer because Chinese EVs are low-cost, high-quality products that consumers would want to own.  

He’s not wrong. 

In March, BYD (OTCMKTS:BYDDY), the world’s largest EV maker, launched its cheaper version of its Seagull EV, with a starting price of 69,800 yuan ($9,700) and a range of 190 miles. 

The company launched a higher-priced Seagull in 2023, selling more than 280,000 last year. The high-end version sells for 85,800 yuan ($12,000) and comes with a range of 252 miles, 33% higher than the low-end version. 

In the Western Hemisphere, the company launched the vehicle in Brazil under the Dolphin Mini brand, with a starting price of $20,000. If it is sold in the U.S., the tariff would bump the price to $40,000.

As Griffin stated, it’s a quality product that is scaring the heck out of U.S. manufacturers such as Rivian. 

“The car, launched last year by Chinese automaker BYD, sells for around $12,000 in China, but drives well and is put together with craftsmanship that rivals U.S.-made electric vehicles that cost three times as much. A shorter-range version costs under $10,000,” stated Associated Press contributors Tom Krisher and Ken Moritsugu on May 13. 

The Bottom Line on Rivian Stock

According to Car and Driver, the Rivian R1T’s standard battery pack has a range of 270 miles, marginally higher than that of the high-end Seagull. Yet, the starter version of the R1T costs $71,700, almost double what the Seagull might sell for in America with the 100% tariff baked in. 

Do yourself a favor and buy BYD stock instead of Rivian. With your gains over the next few years, you can purchase the R1T. 

Rivian stock remains a Sell. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

Articles You May Like

Nvidia Stock Price Outlook: Will NVDA Suffer a Dot-Com Bubble Type Disaster?
Wall Street Favorites: 3 Social Media Stocks With Strong Buy Ratings for June 2024
3 Retirement Stocks to Buy Now: June 2024
Trillion-Dollar Giants: 3 Stocks to Buy Before They Explode
The Return of Meme Stock Madness: Should You Steer Clear of GME, AMC and RDDT?