Electric pick-up startup Rivian stock (NASDAQ NDAQ : RIVN) has seen a massive correction, falling by almost 80% year-to-date, currently trading at about $20 per share. Part of the sell-off is due to fundamental factors, including Rivian’s slower than expected production ramp and rising inflation, and supply-chain issues. For perspective, the company now only expects to produce 25,000 vehicles for this year, roughly half the number it outlined during its pre-IPO roadshows. However, much of the decline is due to technical factors. With interest rates on the rise, investors have been rotating away from high-growth stocks and loss-making names, and this rotation is hurting Rivian badly, given that the company remains deeply unprofitable, with its cash burn for Q1 standing at over $1.4 billion as it invested in scaling up capacity. Moreover, the company’s post IPO lockup period expired in early May, enabling insiders and early investors to sell their shares, and early backer Ford apparently divested about 8 million of its Rivian shares.
Although we had been negative on Rivian stock since the company went public in November 2021 due to its lofty valuation, which at one point stood at over $100 billion, we think the company’s current valuation looks very compelling. While Rivian’s massive cash burn is a concern, the company is very well capitalized, with total cash holding standing at $17 billion. In fact, Rivian’s market cap currently stands at a little over $18 billion, implying that the market is currently valuing the company’s core business at near nothing. There’s probably a lot of room for upside here. The company has a very strong product with its Rivian’s R1T truck being awarded the coveted 2022 MotorTrend Truck of the Year, with the publication noting that it was “the most remarkable truck” it has driven. Demand is also holding up well despite broader market headwinds, with the company noting that it has over 90,000 reservations for its R1-series truck and SUV, up from 83,000 as of its last update in March, with the orders having an average price of $93,000. Rivian also says that the worst of the supply chain issues are likely behind the company, meaning that things could gradually get better on the production front, as the company also ramps up production at its Illinois facility.
Want exposure to the electrification of the automotive industry, without picking individual EV brands? Check out our theme on EV Component Supplier Stocks for a list of companies that stand to benefit from the big EV transition. Also, check out our theme of Automobile Stocks which includes legacy automakers and pure-play EV stocks.
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