Rivian (NASDAQ: RIVN) stock has been at the thick end of this year’s mark-down of richly valued growth stocks. One year ago, it was trading for $172. Today, it’s down to $34 per share. That’s a drop of 80%.
Should I invest in shares of the electric vehicle (EV) maker while they’re down?
Lots of promise
Rivian has many of the things I look for when I’m thinking about investing in a growth company. It is founder-led — CEO RJ Scaringe created the firm from scratch. Its products, the R1S (electric SUV) and R1T (electric truck), are high-quality and desirable, according to most reviews. And the market opportunity it’s pursuing is enormous.
Plus, the EV firm has smart backers, notably Amazon. The e-commerce giant invested $700m in Rivian in 2019 when it agreed to purchase 100,000 custom-built electric delivery vans.
This is part of Amazon’s move to electrify its last-mile fleet by 2040. Rivian expects to deliver 10,000 of those vans in 2022.
Beyond partnering with Amazon, the company also appears comfortable working with established automakers. For example, it recently signed a memorandum of understanding with Mercedes-Benz to jointly produce electric vans. This will involve sharing costs to rapidly scale up production.
Of course, it’s possible that nothing comes of this deal. Rivian originally had a partnership with Ford to co-develop an EV, but that deal was scrapped last year. Ford held a 12% stake in Rivian, but has been selling down its position since their partnership was terminated.
Growing pains
The company had originally expected to deliver 50,000 vehicles in 2022, but that estimate has been revised to 25,000. This is due to supply chain disruptions, particularly with semiconductors.
Meanwhile, inflation is having a serious impact on the cost of production. In its recent Q3 report, management noted: “Throughout the quarter, our cost of materials was impacted by inflationary pressures, which we believe will continue to have an impact on our gross margin for the near future”.
These higher input costs have resulted in widening losses. Its operating expenses rose to $857m in the quarter, up from $694m a year ago.
In response to rising costs, Rivian upped the prices on both its models by roughly 20% this year. That decision caused a massive backlash from pre-order customers, who were now having to pay more than they’d originally anticipated.
The company backtracked for those existing customers, but the higher prices remain for all new vehicles. The fact that Rivian is already raising prices is not ideal. Given a starting price of $73,000, any further price hikes could seriously harm demand.
On top of all this, last month the firm announced a recall of nearly all of its 2022 vehicles because of a manufacturing issue.
Will I buy Rivian stock?
Despite its fall in value, Rivian still sports a hefty market cap of $31.5bn. For a loss-making company expected to produce less than $2bn in full-year revenue, I think this valuation is extreme.
Rivian is experiencing the same ‘production hell’ that Tesla faced when trying to rapidly scale up its operations. But it also has rampant inflation and supply chain issues to deal with.
All in all, there are too many uncertainties right now for me to invest in Rivian stock.
