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Is Rivian’s stock a 'Buy' as more improved EV deliveries predicted?

Rivian’s [RIVN] stock hasn’t had the smoothest ride since its IPO. Having listed at $78 a share in early November, the listing quickly became the sixth biggest of 2021. The electric pickup maker’s stock surged to a high of $179.47 on 16 November. At the time that gave it a market cap north of $100bn, more than both Ford [F] and General Motors [GM].

Yet from there it’s one way traffic with the stock quickly reversing below its IPO price as competition in the EV space mounts. Not helping matters this year is the selloff in tech stocks that is consuming the wider Nasdaq. But a Bloomberg report suggesting that the company is ramping up production has given investors some hope.

Should investors step back from the young EV stock while the market is shaken by uncertainty, or is it time to buy Rivian stock while it sits below its IPO price?

What’s happening with Rivian’s stock

Rivian’s stock revved up 5% during trading last Wednesday to at point touch $67.26. The acceleration in Rivian’s stock was short lived, with the share price closing $57.12, a 20.57% decline. Still, Friday saw a flicker of life in the stock, closing up 5.9% to close the week at $57.12 with the upbeat mood continuing into this week.

Monday saw Rivian’s stock climb over 6% when the markets opened and, having received more detail over the Fed’s likely next steps regarding interest rates, the hope will be that the volatile trading seen recently has settled. Those gains continued into Tuesday in what has been a turnaround in trading after last week, driven in part by Bloomberg suggesting delivery numbers could be up in 2022.

“We delivered our first consumer vehicles, the R1T pickup truck and R1S sport utility vehicle (“SUV”), in September and December, respectively, and completed the certification process for the sale of our Electric Delivery Van (“EDV”),” - Statement from Rivian

 

Delivery numbers matter for Rivian’s stock

Last Autumn was a big moment for Rivian as its electric vehicles began to roll off the production line. When Rivian last updated the market it reported that it had produced 652 of its R1 vehicles and delivered 386 of those. A subsequent update revealed that Rivian had produced 1,015 vehicles by the end of 2021. 920 vehicles were delivered by that date. However, those deliveries missed expectations causing jitters in the stock.

“We delivered our first consumer vehicles, the R1T pickup truck and R1S sport utility vehicle (“SUV”), in September and December, respectively, and completed the certification process for the sale of our Electric Delivery Van (“EDV”),” Rivian said in an update to shareholders.

Things could be different in 2022, with Bloomberg’s Ed Ludlow reporting that the company has addressed production snags and is now looking to pump out 200 vehicles for delivery a week. In December, the car maker averaged 50 R1T pickups a week. News of this sent the stock up on Monday, with the gains continuing into Tuesday. Rivian’s next set of quarterly numbers will be key to gauging whether this will come to fruition.

Still, manufacturing electric vehicles isn’t cheap. And while Rivian might have heavy duty backing in the form of Amazon and Ford, the fundamentals matter when evaluating any company. According to its third quarter shareholder letter, the company generated a negative gross profit of $82m in the third quarter. Total operating expenses shot up 141% to $694m in the quarter, and Research and Development spend was $441m, up from $220m in the same period last year. Something to bear in mind with loftily valued companies getting dinged in the current market.

$694million

Rivian's Q3 operating expenses increased 141% year-on-year

 

Is Rivian’s growth stock status a problem?

Investors have become wary of growth stocks. The threat of multiple interest rate hikes has seen a shift away from highly valued companies where the share price has got ahead of the underlying fundamentals. EV stocks in particular could be aggressively hit. To give some idea of the effect of the tech selloff triggered by wariness around rate hikes, Rivian’s stock has fallen over 33% since the start of the year.

Depending on what’s exactly announced from the Fed, Rivian’s stock could see a prolonged period of struggle. The firm’s operational sales have only just begun, and its stock sits in a precarious position as more aggressive volatility looms.

The stock also suffered in January from news that Amazon will buy electric delivery vans from Stellanis. Amazon [AMZN] is one of Rivian’s backers and has an agreement to buy a substantial number of its delivery vans. Word that the e-commerce giant will also be getting vehicles from Stellanis clearly hurt investor confidence.

What the analysts think about Rivian’s stock

JPMorgan’s Ryan Brinkman lowered his price target on the stock to $84 from $104, maintaining his neutral rating. Brinkman said the lowered price target was more a reflection on the stock’s discount than production numbers.

More bullish is Redburn analyst Charles Coldicott. The analyst thinks that demand will ‘vastly outstrip Rivian’s ability to produce,” with Coldicott estimating that the company could ramp up manufacturing to 345,000 vehicles by 2025 and 1.5m in 2030. Coldicott has a $141 price target on the stock.

Among analysts tracking Rivian on Yahoo Finance, the stock has a $132.93 price target - hitting this suggests a monster 89% upside in Tuesday’s close of $69.62.

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