Rivian Automotive (NASDAQ: RIVN) stock has tanked a shocking 92% in less than two years. After reaching a high of $172 shortly after IPO, the shares crashed all the way to just $14.
At such a huge discount on its previous price, is the American electric vehicles (EV) maker now a buy?
An 89% fall
So, to answer whether I’m buying here, let’s start with why the stock has dropped so much. Shortly after IPO, it reached an outrageous valuation – over $100bn – that was perhaps dragged upwards by the hype from EV competitor Tesla.
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The problem is that revenues were, and are, extremely low by comparison. The carmaker made $1.7bn in revenue last year and $661m in Q1 2023. That looks tiny even compared to the post-crash valuation of $13bn. And how much of this is earnings? Well, none actually. The firm posted a $7bn net loss for 2022 and looks a million miles from profitability.
With those figures, it’s not hard to see why the shares have dropped so much. That’s because from here, to see this as a good buy, I’d need to see Tesla-esque levels of growth. That is to say, over 40% growth year on year while turning margins positive. That sounds like a big ask to me.
And it seems other investors aren’t bullish on its chances. The firm has 77m shares ‘shorted’. That makes a short interest of 12.8%, which is the highest it’s ever been for this young company.
With so many investors betting on this stock to go down, what chance does it have of doing the opposite?
Reasons to buy
I don’t think it’s all doom and gloom and the reason for that is its products. The Rivian R1T – the first electric truck brought to market – is by all accounts a superb electric vehicle that has already won a bunch of awards.
The R1T and its SUV counterpart the R1S are on the roads now too. Production guidance for 2023 was 50,000, up 100% from the year before. Zero vehicles had been produced at the time of its IPO, by the way. And while still loss-making, the firm claims it’s on course to make positive gross profit in 2024.
What’s more, the company has around $12bn in cash or cash equivalents to tide it over until profitability. That sounds like a lot but will get quickly used up if it can’t bring down current losses. Still, it’s good for two or three more years while things get up to speed.
Arguably, Rivian is in a similar position to Tesla before it exploded. And who doesn’t wish they’d bought shares there in 2019? However, it feels like expecting lightning to strike twice. And it might be especially difficult as it has Elon Musk’s firm to compete with, which already has a 65% market share and will soon release its own electric truck.
All in all, the many risks mean this stock isn’t a buy for me. I’ll be looking at other cheap shares for my next purchase.
