Is Rivian Stock A Buy Or A Sell With The EV Startup Increasing 2023 Production Guidance?

Rivian Automotive (RIVN) is looking to challenge Tesla (TSLA), Ford (F) and General Motors (GM) with its adventure-styled electric vehicles. On Nov. 7, Rivian surprised Wall Street, reporting better-than-expected third-quarter revenue and raising its EV production guidance for the full year.

Rivian also announced it will allow more customers to purchase its commercial electric vans, beyond Amazon (AMZN), which remains a key buyer. The EV startup lost $1.19 a share in Q3, less than feared, while revenue jumped 149% $1.34 billion, slightly above views. That marked the fifth straight quarter of smaller year-over-year losses, according to FactSet.

Rivian also raised its 2023 production guidance to 54,000 electric vehicles, up from 52,000 in August. The company tied the hike to “progress experienced on our production lines, the ramp of our in-house motor line, and the supply chain outlook.”

Rivian reported producing 16,304 vehicles and delivering 15,564 vehicles in the third quarter. The company booked a loss of $30,648 per vehicle delivered in Q3, down from a loss of $139,277 per unit delivered a year ago.

Meanwhile, on Nov. 8, Wedbush analyst Dan Ives, a longtime Tesla bull, maintained an outperform rating on RIVN with a price target of 25.

“We still remain confident in the long-term Rivian story, but will need a few more quarters of this performance and ahead of schedule innovations for the company to regain full credit from (Wall) Street,” Ives wrote.

Bumps In the Road For Rivian

The Irvine, Calif.-based automaker has been on a roller-coaster ride since its initial public offering two years ago, due both to overall market conditions and execution hiccups. Meanwhile, supply-chain issues have hampered the entire industry. Rivian has also had problems of its own complicate its launch.

Bumps in the road have included product recalls and price increases that had to be rolled back.

Rivian is not likely to be profitable for a while as it continues to ramp up production. After third-quarter earnings, a number of firms lowered RIVN price targets. However, Goldman Sachs raised its price target to 25, up from 23, writing it could be more positive on the stock if it gains more conviction around Rivian’s path to profitability.

“With a quarterly cash burn in the neighborhood of $1 billion and the company still nowhere near hitting the mass production rates which would achieve a more competitive cost structure, we see further difficulties ahead,” CFRA analyst Garrett Nelson added in a note on Nov. 8 to investors.

Rivian Stock: The Road To Profitability

On September 12, UBS initiated coverage of Rivian stock with a neutral rating and 26 price target.

Rivian should reach positive gross margin in 2024 but larger volumes are not expected until later this decade and an additional capital raise will be needed to support future growth, according to UBS.

The company also topped estimates for its second-quarter delivery report in early July. The EV startup delivered 12,640 vehicles in Q2, compared to Wall Street estimates of 11,000 deliveries.

Rivian makes its vehicles in Normal, Ill. The plant has a production capacity of 150,000 units annually. The plant is expected to shutdown in the second quarter of 2024, with a one-week shutdown in Q4, to introduce new vehicle technology to the R1 platform.

The EV startup currently produces an electric pickup-truck, SUV and commercial vans. In the first half of 2023, Rivian produced 23,387 vehicles. In all of 2022, it churned out 24,337 vehicles and delivered 20,332 units. That number fell short of Rivian’s stated production goal of 25,000 units for the year.

Last year, CEO RJ Scaringe said the global semiconductor chip shortage had been the “most painful” constraint to ramping up production. Management also cited “very sizable increases” in the cost of key metals, including lithium, nickel, aluminum and cobalt.

“Increasing our production is the primary lever in our path to profitability,” the company said earlier in 2023.

Rivian added in its Q3 release it expects 2023 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to be a loss of $4 billion, better than its previously expected $4.2 billion loss.

The EV startup also reduced its 2023 capital expenditures forecast to $1.1 billion, down from $1.7 billion.

Meanwhile, on June 20, Rivian announced it signed a deal to use Tesla’s supercharging stations beginning in 2024. Ford and General Motors and a slew of other automakers had previously signed similar deals with Tesla.

Rivian Stock IPO

Rivian rolled out the first all-electric pickup truck, the R1T, on Sept. 14, 2021, and its R1S SUV in the fall of 2022. The company launched with great fanfare on Wall Street.

On Nov. 9, 2021, the much-anticipated RIVN IPO priced strong, an upsized 153 million shares at $78 a share — above the expected range. Rivian stock has since fallen well below its IPO price.

Nevertheless, the EV startup had a monster IPO. It raised $11.9 billion, giving Rivian an initial valuation of roughly $77 billion. Rivian stock soared to 179.47 on Nov. 16, 2021, then sold off sharply over the following weeks and months.

Rivian had picked a good time to go public. It was among the few startup EV makers actually producing and delivering vehicles. EV peer Lucid Motors (LCID) more than doubled in the first four months after going public in July 2021, as it began deliveries.

As of Nov. 7, 2022, Rivian had 114,000 reservations on its R1 platform, up from the 98,000 at the end of June.

Amazon Has 18% Stake In Rivian

Rivian is currently prioritizing production of electric vans for Amazon. The online marketplace already has around 1,000 Rivian commercial vans delivering packages in major cities in the U.S. It has ordered 100,000 of Rivian’s electric vans.

Rivian reported in its Q3 results it has amended the exclusivity portion of its Amazon agreement allowing the company to sell commercial vans to other customers.

Amazon currently has a 16.8% stake in Rivian, according to FactSet. However, Amazon is also looking elsewhere to electrify its fleet. On Jan. 5, 2022, Amazon and Stellantis (STLA) said they’re partnering to develop vehicles with Amazon software in the dashboards. Stellantis will also make electric delivery vans for Amazon.

Rivian Stock: The EV Price War

With Tesla and other automakers slashing EV prices in 2023, Rivian’s profit outlook could take a hit if it feels pressure to keep pace with its bigger competitors.

Rivian has already been in cost-cutting mode to improve its competitive stance vis-a-vis other EV makers. On Dec. 12, it said it had paused plans to build electric commercial vans in Europe with Mercedes-Benz. Rivian stock fell 5% on the news.

CEO Scaringe has said the company is evaluating “growth opportunities” and pursuing “the best risk-adjusted returns on our capital investments.”

“At this point in time, we believe focusing on our consumer business, as well as our existing commercial business, represent the most attractive near-term opportunities to maximize value for Rivian,” he said in a Dec. 12 statement.

Meanwhile, Rivian hiked the price of its R1T electric pickup around 17% in March. That increased the base cost to about $78,975 from $67,500. The price of the R1S SUV jumped about 20%, bringing the new base price to about $84,000 from $70,000. All prices are before federal tax credits.

New Rivian vehicles are currently not eligible for full $7,500 EV tax credits under the Inflation Reduction Act (IRA). The company’s pickup truck and the SUV both meet the standards for $3,750 tax credit, according to the Internal Revenue Service (IRS) website.

The company said in its third-quarter release it is continuing to “take steps to further strengthen our balance sheet as we develop our next vehicle platform, R2, and begin long lead time equipment purchases for our plant in Georgia.”

Rivian expects to unveil new products in early 2024 with R2 platform production beginning in 2026. The R2 will be more compact and available at a lower price point.

“There’s an extreme vacuum of choice we feel in the sort of $45,000 to $50,000 price range for midsize SUVs,” Scaringe said on the Q3 earnings call.

Rivian Stock

RIVN fell 9.9% on Aug. 9 after second-quarter earnings. Rivian stock is down around 10% so far this year. RIVN shares dropped 17% in August, following a three-month rally. Shares are trading about 78% below their IPO price of $78.

Rivian stock tumbled 9% on Oct. 10, 2022, after the startup recalled nearly all of its 13,000 vehicles on the road to fix a steering defect. Loosened fasteners could cause the steering controls to fail.

As of Nov. 16, Rivian stock is trading below its 50-day and 200-day moving averages after losing more than a third of its value in October, according to MarketSmith analysis.

Rivian stock ranks tenth in IBD’s Automakers industry group. RIVN has a 41 Composite Rating out of 99. Additionally, the stock has a 24 Relative Strength Rating and its EPS Rating is 42 out of 99.

The market status is showing a “confirmed uptrend.” Rivian deliveries are picking up, but heavy losses are likely to continue for some time. Despite better-than-expected revenue and a full-year production guidance increase, Rivian stock is not yet a buy.