Rivian Stock: More Downside Pressure Expected On Valuation (NASDAQ:RIVN) (2024)

Shares of Rivian Automotive (NASDAQ:RIVN) went through a 74% drop in pricing in 2022 and multiple factors could drive shares even lower. Although Rivian benefits from a strong demand situation, the company announced recently that it was recalling more than 500 pickup trucks for faulty airbags. The recall happened just shortly after Rivian’s public relations disaster related to price increases. Ford has also started to sell blocks of shares and I expect more downside pressure on Rivian’s valuation!

Ford is selling into the weakness

Shares of Rivian lost about three-quarters of their value in 2022. They are also down 66% from their IPO price of $78 in the fourth-quarter of 2021 and 85% from their all-time high. Due to lock-up periods, Ford and Amazon have been prevented from selling shares in Rivian which resulted in significant mark-to-market losses for both companies in the first-quarter. Since the lock-up period just expired, Ford has started to sell large blocks of shares. Ford sold 8M shares of Rivian on May 9 at $26.80 per-share, securing $214M in proceeds (Source). Ford subsequently sold another 7M shares on May 13 at a price of $26.88 for total proceeds of $188.2M (Source). Ford still owns approximately 87M shares in Rivian which are currently worth $2.3B. Ford’s share sales come at a time when electric vehicle stocks have fallen out of favor with investors and Rivian’s share price is trading near 1-year lows.

Reaffirmed production target, reservation update

Rivian lowered its production outlook for FY 2022 in March from 50 thousand electric vehicles to 25 thousand electric vehicles, showing a 50% decline in expected volume. Rivian now reaffirmed its production goal of 25 thousand EVs in FY 2022 which helped remove at least some of the clouds hanging over the firm’s short-term outlook.

Rivian disclosed in its shareholder letter that it now received over 90 thousand reservations from its North American customers as of May 9, 2022. Reservations are for both the electric R1T pickup truck as well as the R1S sport utility vehicle. Since the last update in March, Rivian added more than 10 thousand reservations for its R1 products with an average price of 93 thousand.

Price hike disaster, recall of R1T trucks

Rivian raised prices for its electric vehicles in March by about $12 thousand a unit and wanted originally to apply price hikes to pending orders as well. Rivian subsequently rolled back price increases for existing reservations and committed to honoring original prices. So far, this little public relations disaster has not hurt demand for Rivian’s products.

However, the recall that was announced just days ago has the potential to do some brand damage... and it could affect how quickly reservations are growing going forward. Rivian announced that it was recalling 502 R1T pickup trucks (2022) over potentially faulty airbag calibrations. While the recall affects only a relatively small amount of electric vehicles, consumer confidence in the brand may be impacted and cause consumers to take a wait-and-see approach regarding the placement of vehicle reservations.

Rivian’s revenues are ramping up, but shares are expensive

Rivian reported $95M in revenues for the first-quarter. In the entire 2021 financial year, Rivian had revenues of $55M. Because Rivian is still at the very beginning of its production ramp, the company reported a massive loss of $1.59B. Rivian will continue to make losses until the company reaches a critical scale… which I expect to happen around FY 2025.

Rivian's valuation is too expensive relative to its rivals

Rivian’s valuation, despite a 74% drop in pricing this year, is still high and I would not consider buying Rivian right now. Rivian is expected to grow revenues from $1.83B in FY 2022 to $44.6B in the next five years which means the EV startup is going to see a dramatic ramp in both factory output and revenues.

However, based on next year's revenues, Rivian's market valuation and P-S ratio are high (P-S ratio of 3.7 X) and the market may still be too optimistic regarding Rivian’s growth prospects. Other EV manufacturers have much lower P-S ratios than Rivian and some of them are already turning over significantly more product. Regarding valuation and commercial growth prospects, my favorite in the electric vehicle market is currently NIO (NIO) with a P-S ratio of only 1.5 X.

Risks with Rivian

Rivian has material production and timeline risks. Especially with the supply chain remaining vulnerable in the short term, timeline risks for Rivian remain high, despite a reaffirmed production outlook for FY 2022. Additionally, demand for Rivian’s R1T and R1S electric vehicles could be negatively impacted by the firm’s recall measures. Reservations for the R1T and R1S have grown in Q1'22, despite the price hike disaster, but further recalls or a recession may slow the growth in reservations and potentially weigh on the startup’s valuation even more. Additional post-lockup period stock sales by Ford or Amazon could also be negative events for Rivian’s shares.

Final thoughts

The reaffirmed production outlook for FY 2022 and the increase in reservations were good news for Rivian, but the valuation alone just makes shares of Rivian undesirable to own in a market that doesn't appreciate EV companies. Recall issues and potentially more stock sales from Ford and Amazon could drive Rivian’s share price lower in the short term. Despite a 74% drop in pricing this year, Rivian is still expensive. For those reasons, I believe the risk profile and setup for Rivian remain unfavorable!

The Asian Investor