Racing out of the starting gate, shares of Rivian Automotive (RIVN +2.92%) began trading at $78 in mid November following the stock's initial public offering, rapidly rising to $172 only days later. But the joy ride didn't last much longer. Over the past three months, Rivian's stock has plummeted nearly 52%.
This reversal of fortune has investors who hitched a ride with the EV upstart wondering if they should cut their losses and look elsewhere; meanwhile, potential investors who have been watching Rivian's story play out from the sidelines are considering whether the slide is over, and if now's a good time to park the stock in their portfolios. Regardless of which camp investors find themselves in, there are a few things to consider.
NASDAQ: RIVN
Key Data Points
1. Weak links in the supply chain
Tell me if you've heard this one before: Supply chain challenges are acutely affecting Rivian's growth. Investors gassed up with Rivian's stock after its IPO, believing that the company was on the precipice of rapid growth with deliveries of its R1T, R1S, and Electric Delivery Van beginning to occur.
Image source: Getty Imagers.
The company's road ahead, however, isn't particularly smooth. In the company's fourth-quarter shareholders letter, management stated that supply chain issues "which we believe will continue through at least 2022, have added a layer of complexity to our production ramp-up." Rivian disappointingly projected in its Q4 2021 earnings report that it will deliver 25,000 vehicles this year.
Aside from frustrating the nearly 83,000 customers who pre-ordered the R1T and R1S vehicles, Rivian's supply chain woes will likely continue to adversely affect the company's financials. In the recently completed quarter, Rivian cited "increased logistics costs due to expedited freight associated with supply chain challenges" as a factor contributing to the company's Q4 2021 gross profit of negative $383 million.
2. Working in the Peach State isn't so peachy
Last year was a milestone for Rivian: It started production and delivery of three models, the R1T, R1S, and EDV. But the company's drive through 2022 has hit a pothole: local opposition to a new factory. Currently, Rivian has one manufacturing plant located in Illinois, but it plans on expanding production capacity through the development of a second facility in Georgia. The company estimates that the plant -- estimated to cost $5 billion -- will be capable of annual production of 400,000 vehicles.
Local residents, however, aren't so enthusiastic about the facility's development, and they've enlisted the help of a local politician, former U.S. Senator David Perdue, to support their cause. Perdue is challenging Georgia's governor, Brian Kemp, in the Republican primary. While Kemp touts the merits of the factory, which is expected to bring 7,500 jobs, Perdue supports residents who fear that the manufacturing plant will affect groundwater and cause excessive traffic, among other concerns.
It's far too soon to tell if residents will be successful in their plight to prevent Rivian from developing the plant, but it's certainly a story to follow closely.
3. EV enthusiasm is stalling
Two years ago, it felt like every other day a new EV stock was hitting the public markets. Investors rushed to gobble up shares, and EV stocks, including Rivian, skyrocketed to astronomical valuations. The exuberance, however, has waned, with investors choosing to charge up their portfolios with other options.
It's not only Rivian's stock that has slid since last fall. While the S&P 500 has dipped more than 3%, shares of former investor-favorite EV stocks Fisker (FSR +0.00%), Lucid (LCID 6.21%), and Nikola (NKLA +0.00%) have all seen shares fall precipitously. Even Tesla (TSLA 0.69%), which is way ahead of its EV competitors, generating $3.5 billion in free cash flow in 2021, has seen its stock fall our of favor.
Investors shouldn't recognize the decline in Rivian's stock price as an indication that there is something fundamentally wrong with the company. Instead, it's a sign that Rivian is one of many companies that is experiencing a decline in investor interest.
Should investors drive by this EV stock or park it in their portfolios?
Between supply chain challenges and opposition to a new production facility, it's understandable why bears would be interested in staying away from shares of Rivian. But there is nothing facing the company right now that is so formidable that it can't succeed in the long term; in fact, management seems confident that the company will prosper in 2022. The stock's recent slide seems to have steadied, and investors with the patience to ride out temporary dips should be rewarded in the long term.
