Rivian Automotive's (RIVN 0.34%) stock plunged 18% on March 1 after a triple whammy of bad news.
First, the electric vehicle maker posted a disappointing fourth-quarter report. It generated $663 million in revenue, which was a big jump from $54 million a year earlier but broadly missed analysts' expectations by $66 million. Its adjusted net loss widened from $1.24 billion to $1.59 billion, or $1.73 per share, but still cleared the consensus forecast by $0.22.
Second, Rivian announced that it had produced 24,337 vehicles in 2022, which missed its own target of 25,000. It had already halved the full-year target from 50,000 vehicles last March as it grappled with supply chain challenges. For 2023, it expects to more than double its production to 50,000 vehicles -- but that also missed the consensus forecast for over 62,000 vehicles.
Lastly, Rivian announced a recall, which could potentially affect nearly 13,000 of its R1T and R1S vehicles, due to potential problems with its passenger-side airbags. It had issued a voluntary recall of around 13,000 vehicles due to potential steering issues last October. Those two recalls, along with a series of safety complaints from Rivian employees in late 2022, raise troubling questions regarding its quality control standards.
Those setbacks were disappointing and Rivian's stock now trades about 80% below its November 2021 IPO price. Is it still worth buying as a long-term play on the secular expansion of the EV market?
Why is Rivian struggling to produce more vehicles?
Rivian's main plant in Illinois has an annual production capacity of 150,000 vehicles. It plans to expand that plant's annual capacity to 200,000 vehicles this year, and to subsequently start manufacturing cars at its second plant in Georgia in 2024. It expects the combined annual production capacity of both plants to eventually reach 600,000 vehicles.
There's also plenty of pent-up demand for Rivian's vehicles. It had received more than 114,000 preorders for its R1 vehicles as of Nov. 7, 2022, which extends its backlog well into 2024. It also needs to fulfill a massive order of 100,000 electric delivery vans (EDVs) for Amazon, one of its top investors, by 2025. Therefore, Rivian doesn't really face any problems in terms of its manufacturing capacity or market demand.
Instead, Rivian's biggest problem is its inability to overcome supply chain challenges. As a smaller automaker, Rivian lacks the scale or clout of a larger EV maker like Tesla, which delivered 1.31 million vehicles in 2022. As a result, it hasn't been able to secure enough components -- especially semiconductors -- to meet its production targets.
Will Rivian's prospects improve in 2023?
Rivian expects those constraints to ease in the second half of 2023, which matches the expectations of many chipmakers. It also expects its gross margin to slightly improve -- but stay negative -- this year as it raises its average selling price and gradually lowers its production costs. It expects its gross margin to turn positive in 2024 as economies of scale kick in.
On an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis, Rivian expects its net loss to narrow from $5.2 billion to $4.3 billion in 2023. It didn't provide an exact top-line forecast, but its production target of 50,000 vehicles implies its annual revenue might more than double to over $3.3 billion. Analysts had expected its revenue to rise 154% to $4.2 billion, but that forecast was likely pegged to a higher production estimate of 62,000 vehicles.
With an enterprise value of $10.4 billion, Rivian trades at just 2 to 3 times those estimates. By comparison, Lucid -- which produced fewer vehicles than Rivian in 2022 -- still trades at 13 times this year's sales. Tesla trades at about 6 times this year's sales.
Rivian won't run out of cash anytime soon. It ended the year with $12.1 billion in cash, cash equivalents, and restricted cash. Looking further ahead, the company plans to launch its 400-mile "max pack" batteries for its R1S and R1T vehicles in the second half of 2023, and it's expected to launch its third R1 vehicle, the R1X SUV, by the end of the year.
Is Rivian the right EV stock to buy right now?
Rivian is in better shape than a lot of other smaller EV makers, and its stock is fairly cheap relative to its long-term growth potential. However, its inability to meet its own production targets and the recent recalls suggest its growing pains will persist for the foreseeable future. I believe Rivian's stock is worth nibbling on at these levels, but investors shouldn't go all-in unless it makes meaningful progress in resolving its supply chain constraints this year.
