Down 50%, is Rivian stock a no-brainer buy?

Rivian stock has slipped back since its IPO last November. But can this new EV company be one of the best buys of 2022 or is there further to fall?

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Rivian (NASDAQ: RIVN) stock has had a volatile start to life as a public company since its IPO last November. Indeed, after reaching highs of $172 a few days after its IPO, the electric vehicle (EV) stock has since fallen back to around $86. This is a 50% decline. As such, after this large fall-back, can Rivian stock soar or is this the start of a major decline?

Recent developments

There have been several reasons why Rivian stock has fallen so significantly recently. Firstly, the company recently indicated that production for 2021 was going to be below its initial target of 1,200 vehicles. This led to some concerns about the firm’s manufacturing capabilities, especially as it’s such a young company.

Most recently, it was also announced that Amazon, Rivian’s second-largest shareholder, stated that it would buy electric delivery vans from Chrysler owner Stellantis. Although this does not directly jeopardise Amazon’s deal to buy 100,000 delivery vans from Rivian, it does add some extra competition. Rivian’s deal with Amazon was one reason for its high valuation, and therefore, it’s no surprise that this recent development has had such a detrimental effect on the share price.

Even so, there are still plenty of positives for the EV company. For example, it recently announced a new $5bn production plant in Georgia, which should be able to assemble around 400,000 vehicles annually. This may help offset any investor worries about the firm’s manufacturing capabilities. But production at this plant is not forecast to begin until 2024.

The company’s R1T pick-up truck was also awarded the 2022 MotorTrend Truck of the Year, one of the most sought-after awards in the automotive industry. This referred to it as the “most remarkable pick-up truck… ever driven”. As such, there is hope it will have a bright future.

Long-term future

The valuation of Rivian stock is solely dependent on its future prospects. In fact, it has barely started any commercial operations, making revenues of just $1m for the three months ending 30 September 2021. In the same period, it recorded losses of $776m, mainly due to research and development costs and other general expenses. So far, Rivian only has three vehicles as well. Considering that it has a market cap of around $80bn, around the same as Daimler, it may seem somewhat overpriced.

But future demand for products seems strong and this will hopefully allow it to fulfil its potential. Indeed, pre-orders for its R1T pick-up truck recently rose from 48,000 at the end of the third quarter to around 71,000 by mid-December.

What am I doing about Rivian stock?

Right now, I’m not going to buy any shares. I feel that its $80bn valuation cannot be justified. This is especially true considering that it’s facing competition from both Tesla and Ford, which are also releasing EV trucks. Even so, future potential does seem extremely strong, and as a long-term buy, Rivian could be a top performer. This means that if it falls back further, I’ll be far more tempted, and it could be a no-brainer buy. Therefore, I’ll be keeping a close eye on the stock.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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