Last week, the U.S. stock market made history in two starkly contrasting ways. On Thursday, Meta Platforms stock fell 26% -- wiping out $232 billion of its market cap -- the largest ever market cap loss by any U.S. company in a single day. On Friday, Amazon (AMZN +0.55%) stock surged 13.5%, adding $190 billion in market cap -- the largest ever gain by a single U.S company in a day.
2022 continues to be a roller-coaster year in the public markets. Rivian Automotive (RIVN +0.28%) has been a particularly volatile stock. Just three months since going public, it has seen its stock price rise as high as $179.47 and fall as low as $50 per share.
Amazon's earnings gain was helped by its early investment in Rivian. Let's determine if investors should stake a claim of their own in Rivian stock or they should consider alternative options instead.
Image source: Rivian Automotive.
Amazon invested in Rivian for more than just profits
Howard Smith (Rivian): Amazon may have reported a huge gain from the Rivian initial public offering (IPO) in the fourth quarter of 2021, but the value of those shares plunged more than 40% since the end of last year. That drop doesn't really affect Amazon if it plans to hold those shares for the long term. But it is a reminder to ordinary retail investors that there is now an opportunity to get into Rivian stock at a discounted price from where it was just over a month ago.
That doesn't necessarily make it a bargain, with its market cap still hovering above $50 billion and revenue just beginning to flow. The electric vehicle (EV) start-up's valuation could be considered a potential red flag for investors, but there are also prospective green flags to think about for those considering an investment.
Amazon's relationship with Rivian was one source of the stock's decline last month. Or more to the point, it was how Amazon's relationship with another automotive manufacturer might affect its plans for Rivian. When Amazon announced that it would also partner with Fiat-Chrysler parent Stellantis to purchase electric commercial vans, Rivian shares plummeted about 20% in a week. But Amazon soon clarified that it had always expected to need more than one supplier to achieve its Climate Pledge goals, and its plans with Rivian hadn't changed.
Rivian still has much to prove. It only recently began manufacturing vehicles, but its R1T electric pickup truck has won early acclaim and been named MotorTrend's 2022 Truck of the Year. If it successfully executes the ramp-up of its consumer vehicles, Rivian's current high valuation could be justified.
Additionally, it has a commercial van business, with up to 100,000 electric delivery vans expected to be delivered to Amazon. The e-commerce giant plans to have 10,000 of the vehicles in service in 2022, with all 100,000 by 2030.
That balance could be a differentiator for Rivian, as one side of the business can help support the other. If both its commercial and consumer offerings achieve high demand, Rivian's stock could look like a good buy at its recent level.
Buying Ford is a better way to get exposure to Rivian
Daniel Foelber (Ford): Even now that the share price of Rivian is below its IPO price of $78 per share, it's still an incredibly expensive stock. The electric car company has yet to record meaningful sales or deliveries and already started a reputation for overpromising and underdelivering by missing its Q3 delivery guidance. On its own, Rivian simply isn't worth the risk/reward at this time. But investing in a company with a stake in Rivian, such as Amazon or Ford Motor Company (F +1.27%), could be a great way to gain exposure to Rivian's upside with far less downside risk.
Ford has around an 11.4% stake in Rivian, which was worth over $18 billion at Rivian's intraday peak on Nov. 16, $10.6 billion as of Dec. 31, 2021, and $6.6 billion at the close of trading on Feb. 2. Rivian stock will likely continue to be volatile until the company shows progress on its long-term goals and establishes meaningful sales and production or suffers setbacks that damage the investment thesis.
Meanwhile, Ford offers a more attractive risk/reward profile that is better suited for most investors. Ford has spent over 100 years sharpening its manufacturing and distribution prowess. Supply chain challenges and a global chip shortage are certainly affecting Ford, but the company continues to show impressive progress toward rolling out the F-150 Lightning this spring and increasing total EV production capacity to 600,000 units per year by 2023.
Wall Street may have been overly focused on Ford's worse-than-expected fourth quarter -- which is the main reason why Ford's stock price fell 9.7% last Friday. But the real standout was that Ford expects to grow margins, increase total adjusted earnings before interest and taxes (EBIT) by 15% to 25% this year, earn $5.5 billion to $6.5 billion in adjusted free cash flow, and pay $1.5 billion to $1.6 billion in dividends -- all the while ramping up spending on EV production. It also plans to break ground on its highly anticipated $11.4 billion Blue Oval City EV production and battery production complex in the first half of this year.
An investment in Ford is one in a legacy automaker with leading models in key internal combustion engine categories, the electric pickup truck, the SUV and delivery van markets, and Rivian too. With a 2% dividend yield to boot, Ford is a balanced investment worth considering now.
An exciting industry that comes with a great deal of risk
When assembling a diversified basket of EV stocks for the long haul, investors will be pleasantly surprised to find far more options today than existed just a few years ago. Rivian is an exciting choice, but it may be too risky for many investors. However, given the sell-off, now could be as good a time as any to open a starter position in Rivian -- as long as investors understand the risks of investing in a company still in the early innings of its development.
