Bull vs. Bear: Is Rivian Stock Worth the Drive?

Stock Market

Rivian Automotive (NASDAQ:RIVN) has seen its stock price surge more than 20% year-to-date. However, this move follows a significant correction last year tied to the company’s cash burn and dilutive stock offerings, reminiscent of a similar history behind industry juggernauts such as Tesla (NASDAQ:TSLA).

Rivian currently offers three models, its RS1 and RT1 pickup trucks and an electric delivery van. Now, the company’s R2-based vehicles are slated for 2026. 2023, the company aims to produce 52,000 cars and maintain a solid $11.3 billion liquidity buffer. This buffer is partially due to a recent funding round of $1.5 billion via convertible notes.

If EBITDA losses narrow in the next 12-24 months, RIVN stock could see a significant rally. The EV company is also expanding into Europe with more affordable R2-based vehicles, tapping into a substantial market. That’s part of the bull case on this stock.

Given all its ongoing developments, let’s dive into what the bull and the bear case is on Rivian.

The Bull Case

Let’s start with the bull case for Rivian, shall we?

Rivian indeed aims to challenge its EV competitors with its adventure-themed electric vehicles. The company recently exceeded expectations with its Q3 deliveries, producing 16,304 and 15,564 cars. Management’s 2023 annual production goal is 52,000. Analysts expected 14,000 Q3 2023 deliveries, significantly improving from the 6,584 units in Q3 2022.

Before Rivian’s October 2 delivery update, Evercore ISI upgraded RIVN to outperform, suggesting it could become a significant EV player like Tesla and BYD. UBS started covering Rivian on September 12, giving it a neutral rating with a $26 price target. Rivian anticipates a positive gross margin in 2024, but larger volumes won’t come until later in the decade, requiring additional capital.

In addition to the company’s Q3 above production and delivery numbers, which were recently reported, several analysts anticipate a potential guidance raise in the upcoming November 77 earnings report. If that materializes, as Morgan Stanley (NYSE:MS) believes, the investment bank will maintain a $24 price target due to the potential for Rivian to surpass headline numbers, gross margin, and cash flow estimates. Increased Rivian vehicle presence may enhance brand recognition, but they caution that companies like Rivian are not yet autonomous in sales and margins.

The Bear Case

RIVN’s, since its IPO two years ago, has been tumultuous, influenced by market conditions and execution challenges. Widespread supply chain disruptions have affected the entire industry, while Rivian faced its hurdles, including product recalls and later reversed price hikes.

Rivian may not turn profitable immediately due to production scaling. Yet, August 8 8 Q2 earnings were pleasantly surprised, with an adjusted loss of $1.08 per share and revenue tripling to $1.12 billion. That said, it is possible that Rivian burns through enough capital and is forced to raise money at much higher rates, which could lead to a further loss of value for shareholders. 

Right now, this stock simply boils down to investor expectations of execution and the company’s pathway to profitability.

What Now

Rivian certainly faces profit challenges due to EV price cuts by Tesla and rivals in 2023, potentially affecting its competitive stance. The company recently paused plans for European electric vans with Mercedes-Benz, causing a 5% stock drop. An earlier recall of nearly 13,000 vehicles due to a steering defect led to a 9% stock decline in October 2022.

Although Rivian’s deliveries are improving, it’s not currently a screaming buy, with losses expected to persist for some time. That said, the spoils for most investments typically go to investors willing to stick with high-potential companies for long periods and ride them to glory as they eventually dominate their market. We’ll see if RIVN stock can do that, but I remain on the sidelines with this name.

On the publication date, Chris MacDonald did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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