Although investor sentiment may drive the price of a stock in the short term, prices eventually fall in line with the company's fundamentals. Investors' enthusiasm drove the price of Rivian's (RIVN -3.62%) stock exceptionally high soon after the company's initial public offering last November. However, electric vehicle (EV) stocks have corrected significantly this year.
Rivian's stock has fallen roughly 65% from its high of more than $172 in November. The stock's market capitalization has also fallen to around $52 billion. Let's discuss whether Rivian stock looks attractive after its recent fall.
Rivian is progressing nicely
After starting deliveries of its electric pickup truck R1T last September, Rivian delivered 920 vehicles by the end of 2021. That number isn't too far short of the company's target of 1,015 vehicle deliveries by the end of the year. It shows that Rivian can deliver in line with its plans. By the end of 2023, Rivian intends to deliver around 55,400 vehicles, which was its pre-order backlog in November. During the third-quarter earnings call in December, the company's management said it still intends to meet that target.
Image source: Rivian.
Given that Rivian was just around 100 vehicles short of its target in the very first quarter of its production, it could well deliver on its targets for the next two years. Pre-orders for Rivian's pickup trucks and SUVs increased to 71,000 as of Dec. 15.
Rivian has an initial order of 100,000 electric delivery vans from Amazon. Amazon also holds an 18.1% stake in Rivian.
Rivian has already proven the superb quality of its vehicles by winning the MotorTrend 2022 Truck of the Year award, which is presented after an exhaustive test on several performance parameters. Furthermore, the company's truck received positive coverage from news outlets such as Newsweek, Forbes, and Electrek.
Rivian's long-term focus
Rivian is focusing on the pickup trucks and SUVs segment, which is one of the fastest-growing and most profitable auto segments in the U.S. The other key focus of Rivian, electric delivery vans, is also witnessing growing demand. That's driven by demand from logistics and e-commerce companies, which are shifting to electric vans as they predict increased regulatory requirements for the same for their fleets.
What's more, an attractive target market, quality products, and a positive consumer response aren't the only positives for Rivian. There is another factor that hints that Rivian intends to be in the race for the long haul -- the company's charging network. Rivian believes that maintaining its own charging network will help boost consumers' confidence in the brand. By the end of 2023, Rivian intends to install more than 3,500 fast chargers and more than 10,000 level 2 chargers.
The company has adopted a direct sales model with no dealer network. Rivian hopes to deliver an end-to-end differentiated experience to its customers by being in charge of everything -- from sales to charging to service. The company believes that such a model will allow it to offer membership and software services, financing, insurance, charging, maintenance, and repair services, generating recurring revenue for it.
Is the EV maker's stock a buy?
If Rivian delivers vehicles in the next two years per its plans, its stock price would most likely rise from its current levels. Stocks of pure-play EV companies have generally been trading at higher valuations compared to legacy automakers. This difference is based on the belief that pure-play EV companies can generate higher margins. Despite legacy automakers' electrification efforts, it will be many more years before they may see a meaningful uptick in their margins, due to the volume of their internal combustion engine vehicles production. Moreover, it could be very difficult for them to reduce costs to match with much leaner EV start-ups.
Yet the competition in the pickup trucks segment is intensifying, with Ford planning to start deliveries of its electric pickup truck, the F-150 Lightning, this spring. Similarly, General Motors' Hummer electric truck and Tesla's Cybertruck will add to Rivian's competition. Likewise, Amazon has partnered with Stellantis, in addition to Rivian, for electric delivery vans. Ford has also launched its electric E-Transit van.
So it isn't prudent to assume that Rivian can easily deliver all the vehicles it is planning, and, importantly, at the margins it is hoping for. Yet, there is a clear demand for Rivian's vehicles, and it may also see robust demand growth in the coming years. In short, Rivian stock may not generate multibagger returns, but it looks well-placed to generate market-beating returns in the long term. Investors will get more insights into the company's plans when it reports its fourth-quarter earnings on March 10.
