Rivian (RIVN -2.21%) is an intriguing young player in the electric vehicle (EV) market and has already attracted investments and contracts from industry giants including Amazon (AMZN -1.64%). On the other hand, the EV specialist has significantly lowered its vehicle production target for this year, and its share price trades down roughly 62.5% year to date and 77% from its lifetime high.
With that in mind, two Motley Fool contributors have formed a panel to hash out bull and bear takes on the stock. Read on for a look at the pros and cons of investing in Rivian right now.
Image source: Rivian.
Bull case: Abundant demand and plenty of cash
Howard Smith: Rivian's recent quarterly report was only its fourth as a public company. The 2022 second-quarter report contained both positive and negative takeaways. I'd argue that the the positive developments are more of an indicator that this company could indeed grow into its recent valuation and have excellent long-term prospects.
Rivian's losses accelerated in the second quarter, and it is even having to take measures to cut spending. That seems prudent, as the company still holds $15.4 billion in cash and equivalents that it needs to carry it through the development of a second product platform and second manufacturing facility. Rivian plans to begin production at its second facility in 2024, and launch and ramp its R2 vehicle platform in 2025.
Probably the most important piece of information from the company's report was that it reaffirmed plans for production volume for 2022. That is in contrast to what some other EV start-ups have said as they struggle with supply chain challenges. But Rivian must have a handle on that, since its forecast implies that it will actually more than double the 4,401 vehicles it made in the second quarter for both the third and fourth quarters.
That's especially important since its number of preorders continues to accelerate. The preorders for its R1 platform pickup truck and SUV have more than doubled in just the last nine months.
Data source: Rivian Automotive. Chart by author.
Those preorders are cancellable, but the trend shows that doesn't appear to be a problem. And that is in addition to a 100,000 electric delivery vehicle order from early investor Amazon. Some investors may not feel comfortable with the financial results and outlook just provided by the company. But with a longer-term outlook, one can see promise from a solid order book for both Rivian's consumer and commercial vehicles. If the company successfully navigates through supply chain disruptions and higher raw material costs, it could justify its stock valuation in a reasonable amount of time.
Bear case: Rivian could still be risky despite big sell-offs
Keith Noonan: While Rivian's deal with Amazon is intriguing, and its cash pile should give it some flexibility in the near term, the EV specialist is also burning cash at an alarming rate. The company's net loss roughly tripled to reach $1.7 billion in the second quarter, and that raises some red flags in the increasingly competitive EV market. Without dramatic margin improvement, Rivian is on track to burn through its cash pile within the next few years.
Unless the company finds a way to improve its cash flow situation, it will likely turn to major new stock offerings or securing new loans in a high-interest-rate environment to fund operations. Those possibilities look particularly worrisome because the company is facing production difficulties. Rivian's expected vehicle delivery output of 25,000 vehicles this year is just half of what it says it would be capable of manufacturing under ideal conditions, and the company could encounter continued difficulties navigating production headwinds impacting the industry.
Rivian is spending big now to establish a strong position in its industry over the long term. That could pay off in a big way, but success isn't guaranteed, and the strategy looks even more risky in a macroeconomic climate defined by high levels of inflation, rising interest rates, and the threat of a prolonged recession. There's also a risk that other EV manufacturers and established auto giants will move in on the company's turf, potentially limiting sales growth and depressing margins.
Even with huge sell-offs since going public last November, Rivian still has a market capitalization of roughly $35 billion and is valued at approximately 19 times this year's expected sales. That's a valuation that could pave the way for continued sell-offs, particularly with substantial stock dilution or new debt likely coming down the pipeline.
Should you buy Rivian stock at today's prices?
Rivian is a high-risk, high-reward play in the EV space. If the company can scale its business in a cost-effective fashion and capitalize on growth opportunities in the consumer and enterprise markets, it has the potential to be a huge winner despite currently trading at a growth-dependent valuation. On the other hand, the EV specialist still has a lot to prove, and the market's current aversion to growth stocks sets the stage for valuation turbulence if the business falls short of expectations. Rivian stock could deliver explosive returns, but this is a case where you should should approach a potential investment with your risk tolerance and portfolio goals in mind.
