Rivian Automotive (RIVN 6.10%) has been one of the few start-up electric vehicle (EV) companies to be delivering on its growth expectations this year. The company has produced almost 40,000 of its three EV models in the first nine months of 2023. That keeps it on track to more than double its production for the full year compared to 2022.
But signs of declining demand have begun to show for some EV offerings. That has led to a more-than 33% decline in Rivian shares in just the last month. Yet Rivian has some unique aspects as an early-stage EV company, and investors might be considering whether that share-price decline makes now a good time to buy the stock.
A reason to be concerned
Rivian's business might be on the right trajectory, but it still has a monumental amount of work to do to ensure a successful and profitable company. With other automakers delaying planned investments and pushing back prior production growth goals for EVs, there are signs that the path to success may be getting tougher.
Even EV leader Tesla discussed headwinds for the broader sector at its third-quarter conference call for investors two weeks ago. Tesla Chief Financial Officer (CFO) Vaibhav Taneja called the current environment "a period of economic uncertainty, higher interest rates, and shifting consumer sentiment." CEO Elon Musk had even more daunting words as he lamented the affordability of some EVs for borrowers, saying "I am worried about the high interest rate environment that we're in. I just can't emphasize this enough."
In more recent days, battery maker and Tesla supplier Panasonic said it had decreased automotive-battery production in the period ended Sept. 30 due to a global slowdown in EV demand. Semiconductor suppliers to EV makers have also discussed signs of slowing demand.
Much of the slowdown in growth seems to be with more high-end vehicles. One reason for that is the vehicle price cap for tax credits being offered in the Inflation Reduction Act (IRA). Rivian's R1T and R1S pickup and SUV models are in that category. In the company's Q2, average sales price per vehicle worked out to more than $80,000. That puts at least some of Rivian's vehicle trims beyond eligibility for the tax credit.
Image source: Rivian Automotive.
Holding the right cards
Yet Rivian does have some of the right things going for it even in this macroenvironment. It has an existing order for 100,000 electric delivery vans from Amazon that it will continue to fill through the rest of the decade. It also has a unique product that is appealing to a niche group of off-road, adventure-seeking EV buyers.
Perhaps most importantly, it recently raised $1.5 billion in a convertible bond sale to add to the more than $10 billion in cash the company held as of the end of Q2. That money will help fund the investment that is most critical for Rivian investors.
The company recently updated investors on the status of its planned 400,000 vehicle annual-capacity plant to be built in Georgia. It is proceeding with site preparation and is on track to hold a groundbreaking ceremony and begin construction early next year. The success of that facility will be the critical factor in determining Rivian's long-term success. It plans to build its next-generation R2 platform at that plant starting in 2026. Those vehicles will be intended for consumers seeking lower-cost EVs that Rivian hopes will appeal to a mass audience.
Have realistic expectations
Knowing that much of Rivian's success won't be determined for at least two more years means there should be no rush for investors to buy Rivian stock now. Even with the recent stock drop, there may be more declines to come. Many EV stocks are likely to move from more macroeconomic developments in the sector. And there are going to be ebbs and flows in EV growth rates globally.
With that said, some of the stock declines would provide opportunities to gradually add shares over time. If Rivian's business model does pan out, those incremental buys could pay off handsomely over the very long term. The next data point for investors will come on Nov. 7 when Rivian reports its full Q3 update.
