The broader market sell-off is rippling through up-and-coming and established businesses alike. Electric vehicle (EV) newcomer Rivian Automotive (RIVN +0.35%) has seen its stock price fall over 70% from its all-time high, while legacy automaker Ford (F +1.15%) is down 33% from an all-time high set less than two months ago.
The current stock market has shifted away from growth stocks and toward value stocks, but that doesn't mean you should buy or sell a stock just because it is or isn't working right now. Let's break down why Rivian and Ford could both be good long-term buys.
Image source: Ford Motor Company.
Not for the faint of heart
Howard Smith (Rivian): Comparing Ford with Rivian as potential investments means looking at the EV side of Ford. In that sense, both companies are at about the same stage of development. Ford itself is actually invested in Rivian and, at one point, had planned to collaborate with the EV start-up for vehicle development. Ford even reported an $8.2 billion gain from its ownership stake after Rivian's initial public offering (IPO) in the fourth quarter of 2021.
After its IPO, Rivian told investors it planned to produce 1,200 vehicles in 2021, but it finished the year with 1,105 produced and 920 delivered. Supply chain troubles were blamed for the shortfall, which Ford has also been navigating, resulting in production delays at several plants. Rivian ended 2021 with a market cap even higher than Ford's, though with virtually no revenue. But Rivian shares have plummeted year-to-date, dropping 54% to a record low.
There are reasons beyond just overvaluation for that drop, though. Most recently, Rivian announced price increases of up to 20% for its truck and SUV models, even for customers who had already placed reservations with the original pricing. That led to anger and cancellations, and the company backtracked to provide those more than 71,000 reservation holders the prior pricing level.
It is also facing opposition from local residents in Georgia who oppose the new $5 billion manufacturing plant Rivian plans to build. It expects the plant to add an annual production capacity of 400,000 vehicles. The state is now taking the lead to help avoid local zoning law votes. The ultimate success of that project will be important for the company to scale to profitable production levels in the future.
So, now, the company sits with many unknowns and a valuation of still more than $40 billion. But its RT1 pickup truck was named MotorTrend's Truck of the Year, and the company has the support of Amazon, which is both an investor and a customer. If it can successfully scale its business, it may have products in demand -- and a key customer, with Amazon planning to buy up to 100,000 last-mile electric delivery trucks from Rivian.
An investment here is only for a portion of an aggressive portfolio. And investors who buy at recent prices have to expect much more volatility and potential drops in its share price. But with a long enough time horizon, the more than 50% cut in the stock this year might give interested investors a good starting point for a position.
NASDAQ: RIVN
Key Data Points
A great all-around value
Daniel Foelber (Ford): What separates Ford from other automotive stocks is its aggressive EV spending combined with its more than a century-old track record. On March 2, Ford announced it was splitting its legacy internal combustion engine (ICE) business from its EV business. The legacy business will be known as Ford Blue. According to a Ford press release:
"Ford Blue's mission is to deliver a more profitable and vibrant ICE business, strengthen our successful and iconic vehicle families and earn greater loyalty by delivering incredible service and experiences. It's about harnessing a century of hardware mastery to help build the future. This team will be hellbent on delivering leading quality, attacking waste in every corner of the business, maximizing cash flow and optimizing our industrial footprint."
For the time being, Ford Blue will help bankroll Ford's EV business until it becomes profitable. The EV business will be known as Ford Model e. "Ford Model e will be Ford's center of innovation and growth, a team of the world's best software, electrical and automotive talent turned loose to create truly incredible electric vehicles and digital experiences for new generations of Ford customers," said Ford CEO, Jim Farley in a press release.
The decision to split the business units reminds me of the difference between Meta Platforms' advertising business and its metaverse investments. Or BP's core oil and gas business versus its renewable energy investments. The through-line is that one business unit tends to supply the bulk of the cash flow while the other supplies the long-term growth. It's a strategy that makes perfect sense and is much easier than starting a company from scratch and turning to capital markets for dry powder.
Ford has an incredibly profitable business that it expects will stay profitable and generate plenty of free cash flow to support its dividend -- all the while funding EV investments. With a dividend yield of 2.3% and plenty of upside, Ford is a balanced way to invest in the EV space.
Take your pick
Rivian stock has sold off harder than Ford. But it also has a lot more to prove. Getting in on Rivian now could be a better long-term investment than the slow and steady trajectory that Ford may find itself on. For growth-oriented investors, Rivian could be the better option now. But for those who prefer a blend of growth, value, and income, Ford looks to be the wiser choice.
