After Ford Dumps 8 Million Shares, Is Now A Time To Go Long On Rivian?

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As Rivian Automotive Inc (NASDAQ:RIVN) stock trades more than 85% down compared to the post-IPO high of $172.01, the question arises: where’s the floor?

Promising IPO in a High-liquidity Market

Rivian shares shot up 53% in its Nasdaq debut in November 2021, taking the electric vehicle (EV) maker’s valuation to over $100 billion. Shares of Rivian closed at $100.73 on its debut day, representing a 30% surge from its initial public offering (IPO) price. The company previously priced an IPO of 153 million shares at $78 per share.

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The company’s debut in November made Rivian the second-biggest U.S. carmaker by market cap after Tesla Inc (NASDAQ:TSLA), surpassing automotive giants such as General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), and Lucid Group Inc (NASDAQ:LCID).

Rivian’s IPO was the largest offering in 2021, and along with several other EV companies, the carmaker was one of the hottest investments last year. Rivian’s fully diluted valuation surged above $106 billion at its debut price.

Thanks to its huge IPO, Rivian secured roughly $12 billion in funding to invest in growth, making it the biggest U.S. offering since Alibaba’s debut in September 2014.

R.J. Scaringe, CEO of Rivian, said at the time that becoming a public company will allow Rivian to develop “promising products and volume and growth in terms of new segments and new vehicles that we'll be going into”.

Struggling to Ramp Up Output

In terms of a fundamental assessment, Rivian has faced a number of obstacles. The EV startup has struggled to ramp up production in Illinois in 2021 as supply chain issues have troubled global car manufacturers. Rivian’s troubles continued to mount after its COO left the company at the end of 2021.

Rivian has been making hefty investments to ramp up production over recent years, focusing on its all-electric R1T pickup truck launched in September last year. The company also said it plans to roll out an SUV and delivery van to meet some of the fastest-growing segments in the automotive industry.

But just three months after its stock market debut, the investor sentiment towards Rivian started to change as the carmaker continued to struggle to boost production of its pickup trucks, sport utility cars, and delivery vans. The company’s shares today trade significantly well below the IPO price.

Furthermore, investors were additionally concerned about Rivian’s prospects after the company failed to meet its target to produce 1,200 vehicles for individual buyers in 2021. The carmaker also experienced difficulties in providing delivery vans to Amazon, one of its biggest shareholders and a key customer. Remember, Amazon agreed to buy 100,000 electric last-mile delivery vehicles by 2030 from Rivian.

Many believed that Rivian, backed by prominent names such as Amazon, Ford, and T.Rowe Price, is a young EV startup that could eventually compete with Tesla—but that feeling changed quickly at the end of 2021. Again, this is mainly because investors started to worry about Rivian’s prospects to establish itself before auto giants like GM, Ford, and Tesla begin mass production of electric cars.

“The biggest issue: They need to produce two cars at a pace where they do not lose this window of opportunity,” said Wedbush analyst Dan Ives. “And that’s what keeps investors up at night.”

The company previously refused to provide details about whether it has managed to meet its 2021 target to start delivering vans to Amazon, which has been expecting 100,000 vans from Rivian in the following years.

The electric vehicle maker also did not tell investors how many vehicles it expects to produce by the end of 2022 or how much of its current order backlog of around 70,000 pickup trucks and SUVs it would make this year. Investors will be waiting for an update on this front when the company reports earnings on May 11.

Ford Starts Selling as Lockup Period Expires

The lockup period that restricted early stakeholders from trading Rivian shares concluded on May 08. This way, early backers got their first chance to unload shares. This opportunity has been seized by Ford with the Detroit-based company selling 8 million shares via Goldman Sachs to net $214 million.

Rivian shares moved sharply lower in response to the CNBC scoop that Ford intends to sell a portion of its Rivian stake. The car giant held a 12% stake or roughly 102 million shares in Rivian.

The sale has now reduced Ford’s stake in Rivian to 10.5% or 94 million shares and the car giant remained Rivian’s fourth-biggest shareholder.

Rivian’s sharp decline since its IPO also affected its biggest backers including Ford and Amazon, in other ways. In April, Ford reported it lost around $3.1 billion in GAAP terms in the first quarter, mainly due to the loss on its investment in Rivian, while, Inc. (NASDAQ:AMZN) posted a $7.6 billion loss on its bet on the EV startup.

Can Rivian Make a Comeback… Eventually?

2022 is likely to be a year to forget for Rivian. In addition to fighting supply chain headwinds, the company is also being significantly affected by the challenging macroeconomic conditions with the U.S. Federal Reserves acting in a peak hawkish manner.

With rising interest rates, the growth part of the equity market is being affected the most, which explains the sharp move lower in Rivian stock.

Back to the fundamental side of the business, all eyes will remain on Rivian’s ability to secure a critical supply of key components and eventually pass on these higher costs to consumers. Investors will search for clues on how the company is dealing with various shortages and mounting input costs.

In order for Rivian to meet its full-year production target of 25,000 vehicles, the EV startup will have to almost triple its Q1 pace to 7,500 in the remaining three quarters. The company could also lose its opportunity to capitalize on its 83,000 pre-orders as rivals continue to move forward with their electric car developments. Rivian would regain some trust from investors by ramping up deliveries of the R1T model.

For Rivian stock to trade higher from here, investors will have to be sure that estimates are at the bottom, or very near to it. Moreover, investors are likely to pay close attention to the cash burn at Rivian and whether the EV startup will be forced to raise additional funding. This scenario could further hurt Rivian shares given the higher cost of capital currently.

Bottom Line

With Rivian shares down over 80% compared to the record high set shortly after the red-hot IPO, growth investors are scratching their heads in search of bullish signs that the EV stock has bottomed.

For this to take place, the pace of production and deliveries would need to be increased meaningfully, in conjunction with the improving financial conditions that are affecting the broader equity market at the moment.

About the Author

Shane Neagle is editor-in-chief of The Tokenist. Shane has been an active supporter of the movement towards decentralized finance since 2015. He remains fascinated by the growing impact technology has on economics - and everyday life.