In the competitive and rapidly changing electric vehicle industry, Rivian (RIVN) has become a highly debated stock. After its successful IPO in November 2021, the company experienced a significant decline in its share price, with Rivian stock declining around 92% from its all-time high.
Given this situation, it is worth exploring whether Rivian stock currently presents an appealing risk-reward opportunity.
| RIVN | Rivian | $14.88 |
The Bull Case
Despite falling short of its initial target of manufacturing 25,000 vehicles last year, Rivian faced supply chain limitations.
However, the company achieved a sequential production increase of 36% in the third quarter. It anticipates substantial annual production growth, aiming to manufacture 50,000 vehicles this year.
There are even signs that Rivian may surpass this target by a considerable margin.
While Rivian acknowledges the likelihood of continued supplier issues, it expects improved visibility in this area and the potential easing of supply constraints.
According to a report from Bloomberg, Rivian discussed the possibility of manufacturing 62,000 vehicles this year during an internal meeting following the release of its fourth-quarter results. However, Rivian later clarified that the target was misinterpreted and taken out of context.
Despite Bloomberg’s reaffirmation of the 62,000 production target being mentioned in a planning presentation, Rivian may be intentionally managing expectations due to potential supply chain challenges.
Market expectations for the company remain low. Even if Rivian were to achieve the higher rumored target, it would still fall significantly short of its manufacturing capacity. Reaching such a milestone would be a positive development for a company currently facing bearish sentiment.
Production Updates
For the full year of 2022, Rivian manufactured 24,337 vehicles and delivered 20,332 vehicles, slightly below its target of 25,000.
The CEO, Scaringe, has highlighted the semiconductor chip shortage as the most significant challenge in increasing production. Additionally, the company has faced significant cost increases for essential metals like lithium, nickel, aluminum, and cobalt.
Moreover, Rivian has expressed that elevated oil prices have led to notable rises in both freight charges and raw material expenses. I
n response, the company has implemented measures to reduce labor costs, including a workforce reduction of approximately 5% from its total employee count of over 14,000. Management has hinted at the possibility of scaling back certain internal initiatives to achieve further cost savings.
The Removal from NASDAQ 100
Rivian’s removal from the Nasdaq-100 index will have a cascading effect on other indices, leading to the forced selling of RIVN shares. The lack of buyers for these shares could negatively impact the stock.
RIVN stock has faced a 20% decline this year because of intense competition, supply chain issues and production challenges.
The company’s IPO took place in November 2021 at a share price of $78. In the first quarter, Rivian produced 9,395 vehicles and delivered 7,946. To achieve its annual production target of 50,000 vehicles, it must manufacture 40,605 vehicles from Q2 to Q4.
Despite challenges, analysts on Wall Street maintain a positive outlook for Rivian. With 20 analysts covering the stock, the average price target for RIVN is $23.80, suggesting a potential upside of approximately 70% from its current levels.
What Now?
For potential investors considering Rivian Automotive, focusing on recent technological advancements rather than financial statements might be more enlightening.
The company is making significant strides in technology that might disrupt the EV market.
Investing in a market disruptor like Rivian Automotive comes with risks, but for those willing to tolerate volatility, acquiring some RIVN shares for a long-term investment strategy could be worth considering.
On the date of publication, Chris MacDonald 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.