When Rivian Automotive(NASDAQ: RIVN) went public in November 2021, it claimed it could produce 50,000 electric vehicles (EVs) in 2022. But last March it halved that target to 25,000 amid persistent supply chain constraints.
Rivian repeatedly assured investors it could hit that lower target, but it only produced 24,337 vehicles for the full year. That miss -- along with a recent recall, allegations of unsafe work conditions, and the suspension of its EV partnership with Mercedes-Benz(OTC: MBGY.Y) -- all caused Rivian's stock to remain nearly 80% below its IPO price of $78.
Image source: Rivian Automotive.
But could Rivian's stock bounce back this year as it resolves those growing pains? Let's review its long-term roadmap, its financial stability, and its valuations to decide.
Reviewing Rivian's roadmap
Rivian produces three kinds of EVs: the R1T pickup truck, the R1S SUV, and an electric delivery van (EDV) for Amazon(NASDAQ: AMZN). Amazon, Rivian's largest investor, placed an order for 100,000 EDVs back in 2019, and it expects that entire fleet to be delivered by 2025.
There's plenty of pent-up demand for Rivian's vehicles. As of Nov. 7, 2022, Rivian had received more than 114,000 preorders for its R1 vehicles, compared to about 71,000 R1 preorders nearly a year earlier.
Rivian also has the capacity to meet that demand. Its Illinois plant can already produce 150,000 vehicles annually, and it expects to expand its capacity to 200,000 vehicles this year. It expects to open a second plant in Georgia in 2024 to boost its annual production capacity to about 600,000 vehicles. It believes it can produce a million vehicles a year by 2030.
However, Rivian's production was repeatedly throttled by supply chain constraints throughout 2022. During its latest conference call last November, CFO Claire McDonough said "the supply chain continues to be our largest source of uncertainty" as it struggled with tight supplies of chips and batteries. It initially tried to forge a joint venture with Samsung to gain a stable source of batteries, but that deal fell through in early 2022. Its subsequent shift to lithium iron phosphate (LFP) batteries, which didn't require any difficult-to-mine nickel or cobalt, exacerbated those disruptions.
Rivian expects to gradually resolve is supply chain issues this year, but doing so would push some of its planned capex for 2022 into 2023 as it ramps up its production again. During the conference call, CEO RJ Scaringe declared that Rivian's "core focus" in 2023 would be its "continued growth in deliveries." Rivian is also expected to launch its R1X SUV -- which will be sportier, pricier, and more powerful than its R1S SUV -- by the end of 2023. The R1X will reportedly start at $115,000, according to Motortrend, compared to a starting price of about $75,000 for the R1S.
Rising revenue and steep losses
For 2022, analysts expect Rivian to generate $1.8 billion in revenue but post a whopping net loss of $7 billion. In 2023, they expect its revenue to triple to about $5.3 billion and for its net loss to narrow to $6.3 billion.
Based on those estimates, Rivian's annual deliveries might triple to about 75,000 this year. However, investors should take those forecasts with a grain of salt, since they could easily be derailed by more supply chain issues or a global recession. Rivian ended the third quarter of 2022 with a negative free cash flow (FCF) of $1.7 billion, but it was still sitting on $13.8 billion in cash, cash equivalents, and restricted cash. So for now, Rivian can afford to burn more cash as it ramps up its production -- and its low debt-to-equity ratio of 0.2 should give it some room to raise fresh cash at reasonable rates.
Rivian currently trades at 3.1 times its 2023 sales. Tesla (NASDAQ: TSLA), which is expected to generate more than 20 times as much revenue as Rivian in 2023, trades at 3.7 times that forecast. However, Chinese EV makers like NIO(NYSE: NIO) and Li Auto(NASDAQ: LI) -- which are delivering significantly more vehicles than Rivian -- both trade at less than 2 times this year's sales. In short, Rivian seems reasonably valued -- but not terribly cheap yet -- relative to its EV peers.
Rivian's stock could stagnate in 2023
Rivian's downside potential might be limited, but I don't think the bulls will return until it resolves its production issues, accelerates its deliveries, and rolls out the R1X. It won't go bankrupt like other struggling EV makers, but it also won't be an attractive investment as long as rising interest rates continue to punish unprofitable and speculative companies. Based on all these facts, I believe Rivian's stock will continue to stagnate throughout most of 2023.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com, Nio, and Tesla. The Motley Fool has a disclosure policy.
