There are a number of reasons for investors to believe Rivian (RIVN -3.68%) has a bright future. Electric vehicles appear poised to boom, Rivian's models have been well-received, its preorder backlog extends into 2024, and the company has a substantial cash stockpile.
However, while the stock has consistently moved lower since its initial public offering, there's one less overhang keeping the stock down now.
Ford in the rearview mirror
Ford Motor Company (F 0.77%) has almost completely sold off its formerly substantial stake in Rivian. In so doing, it has removed an overhang on the stock price as investors were well aware that it was selling tens of millions of shares, slowly but surely.
The Detroit automaker first took a stake in Rivian with a $500 million investment, and eventually invested as much as $1.2 billion. Initially, the plan was that Ford would partner with Rivian and build a vehicle on its "skateboard" platform, but those plans were canceled before bearing any fruit. Instead, Ford has focused on its own evolving lineup of EVs.
It began divesting itself of its stake in the start-up in May 2022, and has been selling shares fairly steadily ever since. Ford once owned 12% of Rivian, and the downward pressure those stock sales put on its price was considerable -- and that doesn't even take into account the psychological impact on investors of just knowing Ford was unloading millions of shares. The combination of those factors likely held down Rivian's stock price during the second half of 2022.
However, Rivian investors can rejoice that Ford only has about 10.5 million shares remaining -- about 1.15% of shares outstanding -- after it unloaded nearly 91 million shares. And Ford investors can rejoice as well, as management dished out a $0.65 per share supplemental dividend this month that it covered in part with the cash generated from the sale of its Rivian stake.
Combine Ford's near-complete exit from Rivian with the fact that Amazon seems content to hold its shares, and it sets the stage for a rebound in the stock as the EV maker works to hit its forecast goal of positive gross profit in 2024.
What's next?
With Ford in the rearview mirror, Rivian is looking to renegotiate the exclusivity aspect of its electric van deal with Amazon. Word of that came via a Wall Street Journal article published Monday. Amazon recently informed Rivian that it would purchase about 10,000 vans from it this year -- a figure at the low end of the range it had provided. Amazon says it still intends to buy a total of at least 100,000 Rivian vans by 2030.
Ultimately, the conclusion of Ford's share sales will set the stage for a potential rebound in Rivian stock, but any such rebound would need to be sparked by financial performance.
The good news is that there are plenty of opportunities for it to ignite that spark. Rivian is focused on ramping up production of both the R1 and RCV platforms, which should drive down costs, all while developing its R2 platform.
In fact, management has already slowed production on its commercial van line so it can implement its Enduro motor system and LFP battery packs, which are expected to provide significant performance and cost advantages for Rivian. If Amazon agrees to end the van exclusivity agreement, that could be a boon to Rivian's commercial van sales.
Further, management believes the company will be gross profit positive in 2024, thanks to ample demand for its vehicles.
Rivian does still face hurdles, however. While it has roughly $12 billion in cash and cash equivalents on its books, the company is burning through that cushion at a rapid rate and its production growth goals left investors wanting more -- the company forecast that it would produce 50,000 vehicles in 2023. In fact, despite not being in a cash crunch currently, the company opted to raise an additional $1.3 billion via a sale of convertible notes to help fund and launch its upcoming R2 series of vehicles in 2026.
While Ford's long exit made plenty of headlines and likely held down Rivian's stock price, the truth is that the EV maker's future is plenty bright, even if it disappointed investors with production levels due to supply chain issues. Rivian continues to be one of the most intriguing electric vehicle stocks in the market.
