Share prices of up-and-coming electric vehicle (EV) maker Rivian Automotive (RIVN 5.57%) are down a painful 36% year to date, which is worse than the performance of Lucid Group, Tesla, Ford, or General Motors. However, all five automakers are underperforming the Nasdaq Composite.
No matter how you slice it, the EV industry stock chart has been ugly so far in 2022. But with Rivian stock down around 65% from its high, is now the time to begin considering picking up shares, or is there more pain ahead?
Whether to buy depends on many factors, but there are some compelling reasons
Howard Smith: It's just natural that investors like to track what billionaires are doing with their money. When it was disclosed that the fund led by famed 91-year-old investor George Soros held more than $2 billion in Rivian stock at the close of 2021, retail investors jumped in, too. That sent share prices up as much as 10% in the first full trading day after Soros' fund filing. But even with that pop, investors today can get Rivian shares almost 40% lower than where Soros' investment was valued as of Dec. 31, 2021.
That in itself isn't a reason to buy. But there are some fundamental drivers that make an investment in Rivian attractive -- at least for those who have the right mindset and position size for their own situations.
First, investors should fully understand the potential investment. Rivian already had some stumbles before it even began to manufacture at any meaningful volume. It missed its own expectations for deliveries last year, with slightly over 1,000 vehicles shipped. It also received criticism for the way its chief operating officer left the company without communicating the change to investors.
Add to that the fact that the start-up is already valued with a market cap of about $58 billion, and it might seem like a bad investment choice. But it has some intriguing things going for it, too. Its R1T electric pickup truck has already been named as MotorTrend's 2022 Truck of the Year, and the company says it has more than 70,000 pre-orders for its truck and SUV models. It will also be focusing on the commercial delivery van market.
Another big name that is backing the company is early investor Amazon (AMZN -1.61%), with 100,000 electric delivery vans expected to be delivered to the e-commerce giant by 2030. With a customer and investor like Amazon coupled with a recent vote of confidence by George Soros, investors who have a slot for an aggressive investment in the EV sector might want to buy shares at a big discount to where Soros jumped in.
Rivian is nearing a buy, but let's wait and see
Daniel Foelber: Big investors making bold bets into struggling stocks can certainly calm the nerves of retail investors. We saw it a few weeks ago when Bill Ackman bought 3.1 million shares of Netflix (NFLX -1.85%) stock after share prices hit a multi-year low following a disappointing earnings report. The day after the news, Netflix stock proceeded to pop 7.5%. And as Howard mentioned, we saw a similar result when Rivian stock rose 10% off the Soros news.
Although these moves are certainly bullish indicators, it's worth remembering that we don't know the intentions of these big investors. They may be simply buying the dip for a short-term trade, or trading on technical indicators, not the fundamental thesis.
Rivian will likely continue to be an incredibly volatile stock for the next few years as the company fills orders, works to deliver hundreds of thousands of vehicles, and expands its production capacity in Georgia. It wouldn't be surprising if we kept seeing major moves in and out of Rivian stock by Wall Street kingpins.
Given that little has changed since Rivian reported its Q3 2021 results in December, the argument could be made that now is as good a time as any for investors to open a starter position in Rivian. However, I think a better approach is to wait for two important dates first.
Rivian reports its Q4 2021 and full-year results on March 10. That's a biggie, as we'll catch a glimpse of updated production and delivery numbers and the company's 2022 goals. The next major date is May 9, which is the end of the 180-day pre-IPO lockup period. After the lock-up period expires, early investors such as Amazon, which holds around a 20% stake, and Ford, which holds an 11.4% stake, are free to sell their positions.
What concerns me about the May 9 date is that even if Rivian reports a good quarter and guidance, we could see early investors take profits. This isn't a certainty, but it's definitely a risk given that there may be more sellers of Rivian stock than buyers if the EV industry, and the market in general, continue to face short-term volatility.
Be aware of the risks
Howard and I agree that Rivian is a company with immense potential. A strong cash position gives Rivian a big advantage over other electric vehicle companies that are forced to rely on capital markets to fund their growth -- which is a problem in a rising interest rate environment.
If you're considering a position in Rivian, it's worth remembering that this is a company that is valued based on a story. If that story changes due to competition, manufacturing and distribution challenges, or any number of reasons, then it could damage the long-term investment thesis for Rivian. Similarly, if Rivian unveils a new product, or beats expectations, that could add fuel to the fire. Given this backdrop, Rivian stock is arguably best included in a basket of other EV stocks so that an investor doesn't suffer a catastrophic financial setback in case Rivian fails.