The place Will Rivian Automotive Inventory Be in 1 12 months?

When Rivian Automotive (RIVN -0.97%) went public in November 2021, it claimed it may produce 50,000 electrical automobiles (EVs) in 2022. However final March it halved that focus on to 25,000 amid persistent provide chain constraints.

Rivian repeatedly assured traders it may hit that decrease goal, however it solely produced 24,337 automobiles for the complete 12 months. That miss — together with a current recall, allegations of unsafe work situations, and the suspension of its EV partnership with Mercedes-Benz (MBGY.Y 1.48%) — all induced Rivian’s inventory to stay almost 80% beneath its IPO value of $78.

However may Rivian’s inventory bounce again this 12 months because it resolves these rising pains? Let’s evaluate its long-term roadmap, its monetary stability, and its valuations to determine.

Reviewing Rivian’s roadmap

Rivian produces three sorts of EVs: the R1T pickup truck, the R1S SUV, and an electrical supply van (EDV) for Amazon (AMZN 3.56%). Amazon, Rivian’s largest investor, positioned an order for 100,000 EDVs again in 2019, and it expects that whole fleet to be delivered by 2025.

There’s loads of pent-up demand for Rivian’s automobiles. As of Nov. 7, 2022, Rivian had obtained greater than 114,000 preorders for its R1 automobiles, in comparison with about 71,000 R1 preorders almost a 12 months earlier.

Rivian additionally has the capability to fulfill that demand. Its Illinois plant can already produce 150,000 automobiles yearly, and it expects to develop its capability to 200,000 automobiles this 12 months. It expects to open a second plant in Georgia in 2024 to spice up its annual manufacturing capability to about 600,000 automobiles. It believes it will probably produce 1,000,000 automobiles a 12 months by 2030.

Nonetheless, Rivian’s manufacturing was repeatedly throttled by provide chain constraints all through 2022. Throughout its newest convention name final November, CFO Claire McDonough stated “the availability chain continues to be our largest supply of uncertainty” because it struggled with tight provides of chips and batteries. It initially tried to forge a three way partnership with Samsung to achieve a secure supply of batteries, however that deal fell by in early 2022. Its subsequent shift to lithium iron phosphate (LFP) batteries, which did not require any difficult-to-mine nickel or cobalt, exacerbated these disruptions.

Rivian expects to step by step resolve is provide chain points this 12 months, however doing so would push a few of its deliberate capex for 2022 into 2023 because it ramps up its manufacturing once more. In the course of the convention name, CEO RJ Scaringe declared that Rivian’s “core focus” in 2023 can be its “continued development in deliveries.” Rivian can also be anticipated to launch its R1X SUV — which shall be sportier, pricier, and extra highly effective than its R1S SUV — by the top of 2023. The R1X will reportedly begin at $115,000, in keeping with Motortrend, in comparison with a beginning value of about $75,000 for the R1S.

Rising income and steep losses

For 2022, analysts count on Rivian to generate $1.8 billion in income however publish a whopping web lack of $7 billion. In 2023, they count on its income to triple to about $5.3 billion and for its web loss to slim to $6.3 billion.

Based mostly on these estimates, Rivian’s annual deliveries may triple to about 75,000 this 12 months. Nonetheless, traders ought to take these forecasts with a grain of salt, since they might simply be derailed by extra provide chain points or a worldwide recession. Rivian ended the third quarter of 2022 with a detrimental free money circulation (FCF) of $1.7 billion, however it was nonetheless sitting on $13.8 billion in money, money equivalents, and restricted money. So for now, Rivian can afford to burn additional cash because it ramps up its manufacturing — and its low debt-to-equity ratio of 0.2 ought to give it some room to boost contemporary money at cheap charges.

Rivian presently trades at 3.1 occasions its 2023 gross sales. Tesla (TSLA 2.46%), which is anticipated to generate greater than 20 occasions as a lot income as Rivian in 2023, trades at 3.7 occasions that forecast. Nonetheless, Chinese language EV makers like NIO (NIO -4.51%) and Li Auto (LI -9.16%) — that are delivering considerably extra automobiles than Rivian — each commerce at lower than 2 occasions this 12 months’s gross sales. In brief, Rivian appears fairly valued — however not terribly low cost but — relative to its EV friends.

Rivian’s inventory may stagnate in 2023

Rivian’s draw back potential may be restricted, however I do not assume the bulls will return till it resolves its manufacturing points, accelerates its deliveries, and rolls out the R1X. It will not go bankrupt like different struggling EV makers, however it additionally will not be a pretty funding so long as rising rates of interest proceed to punish unprofitable and speculative corporations. Based mostly on all these details, I imagine Rivian’s inventory will proceed to stagnate all through most of 2023.

John Mackey, former CEO of Entire Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. Leo Solar has positions in Amazon.com. The Motley Idiot has positions in and recommends Amazon.com, Nio, and Tesla. The Motley Idiot has a disclosure coverage.