Rivian Stock Analysis: Why Investors Should Hold Off Despite $5B VW Deal
For many who rely on the utility of pickup trucks, an all-electric one might not seem the most practical. After all, these trucks are intended as rough and readily affordable utility vehicles with exceptional range due to their large gas tanks and high carrying capacity both in volume and weight. So when Rivian Automotive (NASDAQ:RIVN) hit the market with its all-electric pickup truck, some consumers saw it as a gimmick.
Yet, despite its innovative approach to a rather contested pickup truck market, Rivian stock quickly plummeted from its initial public offering (IPO) price as consumers responded with relative indifference. Since then, the company has seen a series of ups and downs, most perpetrated by investor excitement over news coverage, but has not even come close to inching back toward its IPO price.
With such a discount a relative volatility, some investors might be tempted to jump in now, but the case for holding off on buying Rivian stock might just be stronger.
Lack of Portfolio Diversification
Perhaps one of the most difficult issues all new automotive companies face is the ability to field a wide portfolio of cars to attract the consumer bell curve. That’s because not every consumer has the same expectations of how his or her car should perform and function. Some drivers expect a fast and comfortable car for easy highway commutes. Others expect a nimble and parkable subcompact for their city communities.
Rivian, on the other hand, has almost entirely built its sales on either sport utility or pickup styling, with the latter being the most successful. Yet, its pickup truck design has done little to draw substantial consumers, as much of the built-in purpose of a pickup truck, like effective towing, is not present when driving a Rivian R1T.
Thus, it’s hard for the fledgling EV company to generate substantial revenues, resulting in an astounding cash burn of $1.45 billion in the first quarter of 2024.
The Importance of Second-Quarter Earnings
With its second-quarter earnings slated to hit next week on Aug. 6, Rivian stock has been at the forefront of many investors’ watchlists. This stems from the news that the company recently received around $5 billion in cash investments from German auto giant, Volkswagen (OTCMKTS:VWAGY) as part of an access agreement for Rivian’s battery technologies and software.
As such, many are curious about where this approach will take the company, and whether or not the influx of cash will impact RIVN’s balance sheet in such a way that might cause Rivian stock to soar on an earnings-per-share or revenue beat.
Much of this will come down to how the company reports its financial metrics such as revenue and profit next week, but one thing is for certain, larger cash reserves as a direct result of outside investment will likely help keep Rivian afloat for the next year or so.
Holding Off For the Average Consumer
From consumer reports to car magazine reviews, Rivian’s cars have received generally warm and positive remarks regarding its prospects as an automaker. Yet, its choice to focus on the pickup and SUV body types in the early days of its trading history has likely stymied sales rather than propelling them.
The major reason for this? Cost. Large EV batteries, like the ones needed to power a heavy pickup truck or SUV are still so expensive to manufacture and build a frame around that Rivian’s cars are just too far out of reach for the average American. Consider that the R1T base-level model starts at $69,900 while the starting price of the R1S is $74,900. Now consider that 78% of Americans live paycheck to paycheck and Rivian’s car sales outlook just looks grim.
As such, buying into the stock now, even if next week’s release results in a rush of hype, is likely to leave long-term investors disappointed until either EV technology becomes affordable to the common person, or consumers start earning better pay across the country. Unfortunately, current trends suggest neither is likely soon, meaning investors should put Rivian stock on hold for now.
On the date of publication, Viktor Zarev 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
