Even in the fast-moving, highly contentious, and volatile electric vehicle (EV) space, Rivian (RIVN -2.21%) stands out as a battleground stock. The automaker went public in November 2021 and saw its share price rocket out of the gate to deliver one of the most successful initial public offerings of the last decade, but lately it's the bears that have been feasting.
With the company's share price trading down approximately 92% from the lifetime high that it reached shortly after its IPO, does the stock offer a sufficiently attractive risk-reward profile at current prices? Read on to see why two Fool.com contributors come down on opposite sides of the heated bull versus bear debate surrounding Rivian stock.
Image source: Rivian.
Bear: Rivian stock comes with too much risk right now
Parkev Tatevosian: My bear case for Rivian centers on the increasing competition in the electric vehicle industry. Rivals such as Tesla have been lowering prices and ramping up production. The two-sided competition will make it difficult for Rivian to sell cars at reasonable prices and source materials needed for production.
That all points to a negative outlook on profitability, which is something Rivian has already had difficulty achieving. Between 2021 and 2022, Rivian's sales expanded from $55 million to $1.6 billion. Meanwhile, its operating losses ballooned from $4.2 billion to $6.8 billion. Rivian touts it has soaring consumer demand for its cars, but that's not resulting in progress on profitability.
It's always easier to capture sales if you price your products lower. However, those low prices lead to massive losses on the bottom line and an unsustainable business model. Rivian has invested aggressively in research and development, manufacturing capacity, and overhead. It's unclear what scale Rivian needs to reach to become profitable on the bottom line.
Investors in Rivian stock would be putting faith in a management team to execute a challenging expansion amid fierce competition. That's typically not a recipe for success for long-term investors.
It might be more prudent to wait for Rivian to show evidence of progress on profitability before purchasing shares of its stock. Sure, you might pay a higher price after it has delivered more progress, but you will be buying the stock with significantly lower risk at that point.
Bull: Rivian has worthwhile speculative appeal
Keith Noonan: While the company's production of 24,347 vehicles last year came short of its initial target for 25,000 vehicles manufactured, this was largely down to supply chain constraints. The company was able to increase production 36% sequentially in the third quarter and expects annual production to more than double to 50,000 vehicles this year. There are some indications it could actually significantly outperform that target.
While Rivian still expects some supplier issues this year, it anticipates having greater predictability on that front, and it looks like some of its supply pressures might be lessening. Following the publication of the company's fourth-quarter results late last month, Bloomberg reported that the company had told employees at an internal meeting that it may be possible to hit 62,000 vehicles produced this year. A subsequent clarification from Rivian seemed to confirm that the target was mentioned but that it was taken out of context.
With Bloomberg then doubling down on its report that the 62,000 production target was given as part of a planning presentation for the year, it seems possible Rivian is trying to keep expectations low in case supply chain issues or other headwinds hit. And it seems fair to say that expectations are low on the market. Even if the EV specialist were to hit the higher rumored target, that production output would still be far below its manufacturing capacity under ideal circumstances. Still, it would represent a meaningfully positive development for a company that's otherwise been surrounded by bearish sentiment as of late.
RIVN PS Ratio (Forward) data by YCharts
With a market cap of roughly $12.7 billion, Rivian is valued at about 3.1 times this year's expected sales. Based on expectations that ramping vehicle deliveries will cause annual revenue to more than double in 2024, the company is valued at less than 1.5 times expected sales for next year. The stock's long-term performance will ultimately come down to whether the business can improve unit economics and get to profitability, but with the stock trading at multiples that leave room for explosive upside if there's progress on that front, Rivian could be worthwhile for investors with high risk tolerance.
So should you buy Rivian stock?
Even after a massive pullback in its share price, Rivian remains a speculative, high-risk investment. The company is posting big losses as it ramps up vehicle production, and it's far from certain that the business will ever shift into delivering consistent profits. Accordingly, investors without relatively high risk tolerance or sufficient confidence that the EV specialist can get into the black should safely steer clear of the stock.
On the other hand, the dramatic decline for Rivian's share price does open the door for substantial upside, and the company may yet be able to prove doubters wrong. While losses are mounting, demand for its vehicles seems strong, and there may be paths to achieving more favorable unit economics as operations continue to scale amid the backdrop of continued growth for the overall EV market.
