Electric vehicle (EV) manufacturer Rivian Automotive (RIVN -12.05%) captured a significant following in the lead-up to its November 2021 initial public offering (IPO). The company, in part, benefitted from heavy investment from both Amazon and Ford Motor Company, which helped give strength to its IPO and boosted the stock price to a sizable $129 on the initial day of trading. Unfortunately, that price was not to last, and the EV maker's share price slipped to roughly $30 in the following months.
Such a noticeable dip in stock price may give any investor pause, but while the manufacturer of Amazon's newest fleet of delivery trucks may seem down, investors might not want to count it out. Developments during the intervening months from the IPO to the most recent earnings report show some signs of hope for the company as it focuses on expanding production.
The strength of a pandemic-era public offering
Rivian made headlines with its strong IPO and delivered a sense of growth and potential to a market dealing with supply chain woes and the fallout of two years of emerging pandemic concerns. Lean times often create lean companies, and the EV maker seemed ready to move from design to production in the months following November 2021.
Rivian's recent earnings report notes, "supply chain constraints will continue to be a limiting factor in our production." This admission shows that the company understands the current situation and isn't in panic mode about how to deal with it, having made the transition from design to production during the beginning of the pandemic woes. Deliveries of the R1 electric vehicle continue apace, and the transition to production that started in 2021 picked up steam greatly throughout the first half of 2022.
Supply constraints failed to put a pause on deliveries or stop the steady ramp-up of production facilities, and Rivian remains poised to continue expansion and deliver on its promises made to date even with the recognized constraints. Rivian's goals include producing the R2 vehicle by 2025, further expanding options for buyers.
Rivian is playing with the big boys now
By August 2022, the EV company has produced over 8,000 vehicles and continues ramping up production toward its 25,000 delivery goal for the year. This may seem like a drop in the bucket compared to Tesla's industry-leading 564,743 vehicles delivered in the second quarter, but Rivian's focus on trucks and cargo vehicles gives it a niche placement and some first-mover advantage in that sector.
Other companies in the space, such as Nio, focus heavily on passenger options and SUVs or crossovers. Rivian research and development benefits from a clear objective in creating, updating, and delivering vehicles with a very specific purpose in mind. In many ways, this means these companies are not in direct competition. The success of Tesla ultimately provides an indication of the type of scale electric vehicle companies can achieve over time.
Downsizing the company as electric vehicle production ramps up
Unfortunately, rapidly scaling up production comes with heavy costs. The company reported second-quarter losses of over $1.7 billion largely due to operating expenses and growth. Last year, before production increases took off, the company lost only $580 million. Rivian still has $15.4 billion in cash or cash-equivalent reserves, allowing it to more effectively withstand the current losses on its way to profitability.
The company's production lines feature support for much higher volumes, so these operational losses should subside as production figures increase. Rivian expects to ramp up its numbers every year with additional facilities to help meet the 98,000 preorders already taken for its R1 delivery vehicle. Those preorders sit atop another 100,000 placed by Amazon directly to upgrade its delivery fleet. The August earnings report indicates strong overall demand, preorders have increased by 28,000 in just the last quarter, and Amazon vehicles hitting the streets offer a passive type of grassroots marketing that could further bolster order levels.
Risk and reward in electric-vehicle investments
Rivian shows a lot of upside potential, with commensurate risks. Production ramp-up continues, and that represents a costly investment that may take some time to pay off. As Amazon and the rest of the world begin to adopt electric delivery vehicles, Rivian holds a unique position that could lead to dominance more similar to that of Paccar and its ubiquitous Peterbilt line than the general Ford family of vehicles. Savvy investors might well use this opportunity to snag Rivian stock at its current low prices and hold for the next decade, or consider a safer bet like an electric vehicle exchange-traded fund to help mitigate overall risk.