I was wrong about Rivian Automotive Stock (NASDAQ:RIVN)

Michael M. Santiago/Getty Images News

Rivian Automotive Inc. (NASDAQ:RIVN) recently set new 52-week lows amid an escalation in sales in the electric vehicle sector, which was fueled by rising supply chain risks. Despite the fact that the production and delivery figures for the first quarter 22, which I only recently mentionedpointing in the right direction, the market currently has no appetite for high-multiple stocks.

Given the heightened supply chain risks, I wouldn’t be surprised if Rivian Automotive cuts its 2022 production forecast again.

First glimpse of supply chain suggests orientation risks have intensified

Rivian Automotive went public at a time when demand for electric vehicle stocks was high and investors were willing to pay almost any price for the promise of increased market share and sales. However, since Rivian Automotive’s IPO in late 2021, the stock has consistently underperformed.

Rivian Automotive’s decline has accelerated since the company announced in February that it was cutting its 2022 production forecast by 50% due to mounting parts supply problems.

Inflation is also affecting Rivian Automotive’s pricing structure, and the company announced price increases of up to 20% for the R1T pickup truck and R1S SUV in March, much to the chagrin of reservation holders. Rivian Automotive management quickly backtracked after customers complained about price increases, but the damage was already done.

According to the new production forecast, Rivian Automotive expects to produce only 25,000 electric vehicles this year, compared to an initial forecast of 50,000 that Rivian Automotive provided as a realistic production target by the end of 2021.

However, growing supply chain problems are causing problems for Rivian Automotive and its management, and these problems could get worse before they get better in the short term. According to new delivery data released by Chinese EV companies, the re-emergence of Covid-19 had a significant negative impact on deliveries in April.

For example, NIO only delivered 5,074 electric vehicles in April, compared to 9,985 in March, a disturbing drop of 49%. Deliveries from other electric vehicle companies were also halted. The decline in shipments follows a major decline in the Chinese auto market: auto sales fell 11.7% in March.

The decline in deliveries for Chinese EV companies like NIO is due to production disruptions caused by Covid-19, rather than weakening consumer markets or slowing economic growth. Manufacturing plants closed across China in March and April, and authorities imposed new lockdowns in major cities such as Beijing, Shanghai and Shenzhen.

Disappointing delivery numbers from Chinese companies provide insight into the severity of current supply chain issues, and they may also point to more problems for US-based electric vehicle companies such as Rivian Automotive.

Worryingly, Rivian Automotive only recently cut its production forecast by 50% for the same reasons we just learned that led to a significant drop in volumes for Chinese EV companies. As a result of these developments, Rivian Automotive’s production forecast may now be more at risk and the company may be forced to revise its outlook downwards.

The gains are not going to be great

When it comes to electric vehicle companies, investors should understand that they are valued on their long-term sales potential rather than their current earnings. Scaling up production and deliveries is key for new companies like Rivian Automotive, which delivered just over 1,200 electric vehicles in 1Q-22. As a result, a reduction in production forecasts, which is an indicator of expected future sales, is a very negative event for EV companies.

Rivian Automotive’s 1Q-22 results will be released on May 11, 2022 and the market expects the company to post a loss of $1.45 per share. Rivian Automotive will not be profitable this year or next. That said, the most important figure revealed in Rivian Automotive’s 1Q-22 earnings release will be the estimated 2022 production numbers of the R1T, R1S and EDV commercial delivery vans.

Revenue estimate

Revenue estimate (Rivian Automotive)

I was wrong about Rivian Automotive

I bought Rivian Automotive shares at a much higher price than its current market price of $30. Unfortunately, RIVN entered a descending channel in 2022, and the odds of a resurgence are not high, especially in today’s market, where sentiment is stacked against multiple high growth stocks that are also facing a deterioration of the supply chain. The release of Chinese EV delivery data doesn’t help either, implying that Rivian Automotive is likely to hit new lows.

RIVN share price

RIVN share price (Finviz)

I made the mistake of assuming that Rivian Automotive could scale up production and deliveries without incident, and I didn’t give much thought to potential production constraints that limit the company’s growth.

Long term, I still expect Rivian Automotive to be one of the leading electric vehicle companies in the United States, due to Amazon’s investment in the company, which resulted in an order for 100,000 vehicles some time ago.

Why Rivian Automotive Stock Could Rise

The supply chain crisis is unlikely to be resolved quickly, but all crises will end at some point. The supply chain crisis could worsen in the short term, but it is not expected to have a long-term impact on Rivian Automotive’s sales growth potential in the electric vehicle market or on the valuation of the vehicle. ‘business. On the other hand, better-than-expected earnings per share or pre-orders next week could lift the stock despite more severe macroeconomic headwinds.

My conclusion

The release of Chinese electric vehicle delivery data for the month of April offers investors a first look at the supply chain, and it’s not promising. Rivian Automotive is expected to release its second quarter results next week, and the company could lower its guidance for 2022 even further. In the short term, that would be disastrous for the stock.

Unfortunately, I made a mistake when I purchased Rivian Automotive at a much higher valuation. While I think Rivian Automotive has long-term potential, the stock could face additional consolidation pressure.

About Clara Barnard

Check Also

Bausch Health Companies – Headwinds, Again (NYSE: BHC)

Prykhodov/iStock via Getty Images Shares of Bausch Health Companies Inc. (NYSE: BHC) continued to slump …