Rivian May Be Giving Investors a Case of Mistaken Identity
Will the real Rivian (NASDAQ:RIVN) please stand up? Six days after going public, RIVN stock charged to a closing price of $172.01. That was 128% above its initial public offering (IPO) price of $78. But as of this writing, the stock can be had for 17% below its IPO price.
That’s a pretty dramatic shift in sentiment. And there are a number of reasons for the stock’s decline. First, investors are still in a defensive mood and shifting to risk-off assets. Second, Rivian “missed” on its delivery estimates for 2021 by approximately 180 vehicles. And third, the company exists in the electric vehicle (EV) sector that is loaded with competitors.
In this article, I’ll try to unpack each of these issues and let you decide for yourself.
RIVN Stock and Tesla: Guilt by Association
On Jan. 31, 2022, RIVN stock soared higher, but not because of any news about Rivian. Rather, the company benefited from a halo effect as Tesla (NASDAQ:TSLA) received an analyst’s upgrade. This is a reminder that, at least for now, the fortunes of Rivian and Tesla are closely connected. However, that also puts Rivian on the wrong side of the current risk-off mood on Wall Street.
In fairness, TSLA stock has not been immune from the shift to value stocks. However, it still trades at over $900 per share. The only way that price seems justifiable is if you share the view of the true believers. They would say that Tesla is a technology company, not simply an auto manufacturer. In my mind, that argument is starting to wear a little thin.
That doesn’t mean I’m expecting RIVN stock to approach anything closer to Tesla’s stock price or market capitalization. However, as long as the fortunes of RIVN stock are linked to Tesla, it will be a volatile ride.
Production Moves to the ‘Prove It’ Stage
It’s not significant that Rivian missed its 2021 production estimate by a mere 182 vehicles. The company only began production in October 2021. What has investors on edge is what production looks like for 2022 and beyond.
Analysts are forecasting Rivian to boost production to approximately 1,500 vehicles per month in 2022. And the goals will only get more ambitions after that. But whether Rivian hits the production goals in the short term may be more about supply than demand. Initial production was delayed due to pandemic-related snares. It’s fair to imagine that supply chains will begin to regulate in 2022. However, it’s also not off base to think they won’t. A range of outcomes are possible that make it difficult to assess the effect on production.
With Partners Like These
My InvestorPlace colleague Josh Enomoto reminded investors of the conundrum that the EV sector presents. Namely, that not every company will be successful. And that just illustrates the broader point that competition in the sector abounds.
However, another potential concern comes from Ford (NYSE:F) who has an $8 billion stake in Rivian. RIVN stock dropped 5% on Jan. 26 when Ford announced it had no plans to sell its stake in Rivian. But Ford CEO Jim Farley left the door open for possibly liquidating the stock in the future. According to Farley “Everything is on the table. Our lock-up period ends in May.”
And earlier in January, RIVN stock received a blow when Amazon (NASDAQ:AMZN) announced a partnership with Stellantis (NYSE:STLA) that includes making Amazon the first commercial customer for Stellantis’ Ram Promaster electric van.
RIVN Stock Remains Overvalued
When Rivian reports earnings in mid-March, investors will get a first look at the company’s actual and estimated revenue. But the company is not expected to be profitable anytime soon. And with only about 30% of RIVN stock in the hands of institutional investors, it is retail investors that will do the heavy lifting. But should they continue to pay a premium for RIVN stock?
Bulls can point to the fact that RIVN stock is trading near its 52-week low. And from a technical standpoint, that appears to be a level of support. However, that level of support keeps going down. And if Rivian fails to impress with its next earnings report, that level is likely to be tested.
Let’s see what the production numbers say. I’d also be curious to see what Ford does. Until then, Rivian is a watchlist stock for me and not much more.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for eight years. He has been writing for InvestorPlace since 2019.
