Rivian Automotive’s (NASDAQ:RIVN) management deserves praise for listing RIVN stock at the perfect moment as the stock shot to $180.
Rivian management’s celebration proved short-lived. The next day after the peak, sellers emerged.
Despite the drop, RIVN stock could see ~ $180 again if investors look at what brought the stock there in the first place.
Ahead of the IPO, competitor Lucid Group’s (NASDAQ:LCID) share almost tripled from $20 to close to $60. Markets basked in the luxury EV maker’s first production unit a few weekends ago.
Tesla (NASDAQ:TSLA) managed to find another high at $1,243.49. It surpassed the trillion-dollar valuation despite trading at a price-to-earnings of over 350 times.
More recently in China, Nio (NYSE:NIO) posted strong deliveries. XPeng (NYSE:XPEV) announced the G9 SUV with X-Pilot 4.0. This model will charge in five minutes for a 200-kilometer range.
The positive news for EVs could lead to another leg up. Rivian’s ~ $100 billion market capitalization will look like a bargain compared to that of Tesla.
A Closer Look at RIVN Stock
Ford (NYSE:F), an early supporter and investor of Rivian, reportedly canceled plans to collaborate on an EV development. This is a major setback for Rivian, who relies on Amazon (NASDAQ:AMZN) and Ford as customers.
Ford does not need Rivian. Customers are warming up to the F-150 electric. Its EV development advanced better than Ford expected. Ford is going further than it thought in EV and probably sees Rivian as a competitor than as a collaborator.
Ford’s nearly 12% stake in Rivian is a cash windfall. It may cash in on the stock, then reinvest the proceeds in batteries, a charging network, or in EV research and development.
As if its vans were too good to be true, Amazon’s testing on them is another hindrance for Rivian. The Information reported that Rivian’s van range is potentially worse than that disclosed in its IPO filing.
The driver said that with the air conditioner running, the battery drained around 40% faster.
In hot areas like Texas, drivers cannot survive without an A/C. Amazon will need to re-negotiate the financial terms of the 10,000 Rivian units it ordered.
Fair Value
My $180 speculation depends on momentum returning to the EV sector. This prediction requires investors to ignore Rivian’s fundamental headwinds ahead. Unfortunately, Rivian does not have one analyst offering a price target.
Investors who treated RIVN stock as an IPO trade that would fade did very well. Anyone who bought the stock at the high will need to wait for almost a year before shares rebound.
Snowflake (NYSE:SNOW) and Palantir (NYSE:PLTR) are examples of stocks that spiked after listing on the stock exchange. They both fell to relative bargains when bulls gave up. At that point, both stocks eventually recovered.
Rivian shares are relying on buying momentum to rebound. It will need to solve its supply problems and build over 10,000 EV units. The firm needs to carve a moat in the Truck EV market.
It offers a nice design and has brand recognition. It could potentially out-flank Ford, too. Ford’s F-150 may have production delays, quality issues, and recalls that slow sales. This would give Rivian a chance to prove that it deserves a richer valuation.
Risks and Your Takeaway
Tesla’s competitive pressures may return. The company delayed Cybertruck deliveries. It also pushed back its Semi truck program to 2022 due to supply chain challenges.
The EV giant is not a threat yet. That could change if Rivian does not build market share quickly from here.
Rivian’s R1T all-electric pickup and R1S all-electric pickup SUV delay is a severe risk. Before its IPO, investors bet on Rivian selling plenty of R1Ts this quarter.
Since it cited supply constraints, its competitors will face similar delays. Furthermore, customers who reserved a unit may commit to the order. That only delays Rivian’s revenue until 2022 instead of losing it.
Rivian’s steep post-IPO sell-off is usual for hot stocks. The selling pressure will eventually end. Its rebound to almost $180 is improbable but not impossible.
Short-sellers may build a bearish bet on the stock from here. That could lead to a squeeze early next year, especially when Rivian’s production volumes pick up.
Investors cannot dismiss a Reddit-style meme stock short squeeze either. While that may seem unlikely, anything can happen in these volatile markets.
On the date of publication, Chris Lau did not have (either 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 Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.