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Electric vehicle (EV) stocks have been volatile over the past year and Rivian Automotive (RIVN 2.45%) is no exception. The company’s share price is down 82% over the past 12 months.
The EV start-up has encountered some major potholes as it expands its production and faces increasing material costs.
But despite its recent setbacks, there’s still plenty to like about this electric vehicle stock and it could be the right investment — in small amounts — for investors looking for an EV pure play. Here’s why.
Image source: Rivian.
There’s no getting around how difficult things are for most electric vehicle stocks right now, so let’s take a quick look at some of the not-so-great things happening with Rivian.
First, the EV maker has felt the pain of rising material costs. Some of the prices for raw materials used to make EVs and batteries rose significantly over the past year and Rivian had to raise the price of its vehicles as a result. Higher prices caused the overall cost of running the company to go up and contributed to Rivian’s widening losses. In the third quarter (ended Sept. 30), Rivian’s losses widened to $1.7 billion, compared to $1.2 billion in the year-ago quarter.
As a result of some of these cost pressures, the company laid off 6% of its workforce, about 900 employees, in mid-2022. Additionally, the company had to recall nearly all of its vehicles (about 12,000) last year to fix a loose fastener connected to part of its steering mechanism. The majority of the fixes were completed within a few weeks of the recall.
And most recently, the company announced that it’s not moving forward with its partnership with Mercedes-Benz to work on an EV van platform together.
All of this bad news, combined with fears of recession, caused Rivian’s share price to fall well below its original initial public offering price set back in November 2021.
But there are reasons to be optimistic about Rivian as well. First off, the EV maker is ramping up vehicle production very quickly. In the third quarter, vehicle production increased by 67% to 7,363 vehicles. Additionally, Rivian’s management continued to reiterate that it will meet its goal of producing 25,000 vehicles for the full 2022 year (fourth-quarter results will likely be released in March).
While that’s not a lot of EVs, the company has steadily grown its production since it went public and says it will double its vehicle production this year. A new plant being built in Georgia — Rivian’s second — should help the company achieve that goal.
It’s also worth pointing out that Rivian already has an order of 100,000 electric vans from Amazon. Rivian began deliveries of the vans back in July and more than 1,000 of them are already on the road. Amazon and Rivian have said that the full 100,000 van order will be completed by 2030.
And finally, while there are macroeconomic headwinds for the entire EV industry, Rivian’s management has said that the company has enough cash on hand right now to keep the company up and running through 2025. That means Rivian can likely weather some difficult times as the company continues to ramp up its vehicle production and deliveries.
For all of the reasons above, I think opening up a small position with Rivian could be a good way for investors to benefit from the growing EV market — which will be worth an estimated $1.4 trillion globally by 2027, according to a study publicized by Statista.
The company has a price-to-sales (P/S) ratio of 16 right now, making Rivian’s shares significantly cheaper than the 45 P/S ratio the company had this time last year, though not exactly cheap when compared to EV leader Tesla‘s P/S ratio of 5.6.
Investors will need to be patient right now as the EV market experiences volatility amid a broader tech stock sell-off in the market. But investors who are willing to take on some risk — and who are willing to hold on to their shares for five years or more — may want to put a little money into this stock to have exposure to a fast-growing EV pure play.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com and Tesla. The Motley Fool has a disclosure policy.
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