Shares of electric vehicle (EV) manufacturer Rivian Automotive (NASDAQ: RIVN) have burnt massive investor wealth in 2022. RIVN stock went public last November and touched a record high of $179. It's currently trading at $40, which is 77% below all-time highs.
Let’s see if Rivian stock price can move higher in the coming months and outpace the broader markets going forward.
The bull case for Rivian stock
Rivian is backed by stalwarts such as Amazon (NASDAQ: AMZN) and Ford (NYSE: F). Amazon, in fact, has a 20% stake in Rivian and has pre-ordered 100,000 EVs, which will be delivered through 2030. Rivian continues to expand its partnerships and just inked a deal with Mercedes-Benz Group to manufacture large electric vans in Europe.
The joint venture between the two will allow the automobile manufacturers to share costs and scale operations at a sustainable rate. It is, without doubt, a big-ticket deal for Rivian, which is still trying to gain a foothold in the rapidly expanding EV market.
Rivian and Mercedes will reportedly share factory space at an unspecified plant in Europe which the latter already owns. They will build two electric vans. One van will be based on Mercedes’ electric van architecture, while the other will be called the Rivian Light Van.
According to Rivian’s press release, the two companies will “leverage shared investments, shared costs and will pursue operational synergies to rapidly scale electric van production.”
The electric van market is forecast to touch $22 billion in 2027, up from just $2.7 billion in 2022, unlocking the potential for Rivian to drive sales significantly higher in the upcoming decade.
Analysts expect Rivian to accelerate sales at a stellar pace while driving costs lower (as a percentage of revenue) and generate stable cash flows similar to what is achieved by market leader Tesla (NASDAQ: TSLA).
In Q2, Rivian delivered 4,467 vehicles, up from just 1,227 vehicles in the March quarter. The company ended Q2 with a pre-order backlog of 98,000 units. Additionally, Rivian’s manufacturing unit in Illinois already has the capacity to produce 150,000 vehicles each year.
The bear case for RIVN stock
While Rivian is forecast to increase sales from $1.85 billion in 2022 to $6.45 billion in 2023, it will remain unprofitable in the foreseeable future. Rivian needs to focus on lowering its cost base amid a challenging macro-environment. In the past few months, Rivian and several EV peers had to wrestle with supply chain shortages, rising commodity prices, and higher interest rates.
In Q2 of 2022, Rivian posted a net loss of a whopping $1.7 billion, compared to a net loss of $580 million in the year-ago period. Between 2021 and 2023, analysts expect Rivian to report a cumulative net loss of $12.6 per share, indicating an adjusted loss of over $11 billion.
Yes, Rivian ended the June quarter with almost $15 billion in cash, but it will have to start generating positive cash flows by the second half of 2024 or raise additional capital in the form of equity or debt.
Due to supply chain disruptions, Rivian recently lowered production goals which lowered revenue forecasts for the next 12 months.
RIVN stock is trading at a market cap of $34 billion, valuing the company at 18.4x forward sales, which is quite steep for a loss-making entity.
Rivian is a high-risk, high-reward stock, as a lot can go wrong before it manages to post a consistent profit. Alternatively, the backing from Amazon, a strong order book, and the global shift towards EVs make it an ideal bet for the high-risk investor.
Analysts tracking RIVN stock have a price target of $53, indicating an upside of 30% in the next year.