Electric vehicles (EVs) weren’t popular when the earliest models hit the market. EV engines couldn’t deliver the power that consumers enjoyed with traditional gas-fueled cars and trucks. On top of that, their short battery life left drivers stranded with nowhere to recharge if they ventured too far from home.
The past two decades brought tremendous advances in the design of electric vehicles. The newest options have above-average technology, satisfying engine power, and batteries capable of up to 400 miles on a single charge.
Better still, EV infrastructure has entered the mainstream, and charging stations are available nationwide. Parking structures cater to electric cars by giving them preferred spaces complete with charging equipment, and gas stations, highway rest stops, fast food restaurants, and office buildings have expanded to include EV-friendly amenities.
For the past few years, the biggest name in electric vehicles was Tesla (NASDAQ:TSLA).The company produced a selection of sleek high-tech cars that commanded attention and appealed to high-end drivers.
From January 2020 to present, Tesla stock went up more than 1,000 percent. Many investors were convinced that Tesla would corner the EV market for years, and they ignored other companies attempting to enter the EV space.
Fortunately, new entrants to the EV market didn’t get discouraged, and some are starting to gain real traction. Billionaire investor Warren Buffett bought BYD stock for his Berkshire Hathaway portfolio, and Polestar started offering luxury electric vehicles that appeal directly to Tesla’s target market.
Ford and General Motors are steadily expanding their reach with dependable, affordable electric cars and trucks. They give risk-averse investors an opportunity to gain EV exposure without the dangers inherent to a startup or the volatility that comes along with any of Elon Musk’s companies.
Perhaps the most interesting EV story is Rivian (NASDAQ:RIVN) – an EV manufacturer that everyone counted out. It’s not yet profitable, and after disappointing first-quarter 2023 results, RIVN stock fell below $12 per share. However, at the end of June, Rivian abruptly recovered. In fact, RIVN stock increased by nearly 70 percent in the first two weeks of July.
Why did Rivian stock go up? And is it safe to buy Rivian stock now?
Why Did Rivian Stock Go Up?
Rivian hasn’t been around all that long. The company was founded in 2009, and it held its IPO at the end of 2021. The stock price started off strong at more than $125 per share, but RIVN’s decline began almost immediately.
The stock never regained lost ground. By the end of 2022, it was trading under $20 per share. When first-quarter earnings were released in May 2023, RIVN bottomed out at less than $12 per share.
The first quarter results weren’t all bad, but Rivian hadn’t lived up to its promises. In 2022, the carmaker built 24,337 vehicles, but only 20,332 were delivered.
When 2022 year-end results were announced, Rivian leadership assured investors that 2023 would be quite different. They said Rivian would more than double production – and presumably sell every one of its electric SUVs and electric pickup trucks.
At the end of first quarter 2023, Rivian’s total production was just 9,395 vehicles, and less than 8,000 had been delivered. Many loyal investors finally gave up and sold their stock in an effort to cut their losses.
When the second quarter closed on June 30, 2023, Rivian gave a little preview of its upcoming earnings call. The biggest news was second-quarter production – a total of 13,992 vehicles. Of those, 12,640 had been delivered.
A bit of quick math shows that between the two quarters, Rivian has nearly matched total 2022 production. The 50,000 goal might be attainable after all. More importantly, the gap between production and delivery is closing.
After this information was released, the stock began to climb right away. In less than two weeks, it gained almost 70 percent. Certainly, RIVN is nowhere near its IPO price – total losses are still over 80 percent – but early investors that stayed the course are beginning to feel hopeful again, and many prospective investors are seriously considering RIVN.
Is It Safe To Invest In Rivian Stock?
Recent events notwithstanding, Rivian stock remains in the high-risk category. Rivian is growing rapidly, but it isn’t generating a profit.
Net cash is down more than 30 percent year-over-year, and long-term debt is up more than 100 percent as of Q1 2023. Current and prospective investors won’t know whether and how those figures have changed until full Q2 results are released in August.
Rivian leadership has estimated that the company will see a gross profit by the end of 2024. The catch is that the company has to stay afloat between now and then.
As demand for EVs goes up, more companies are entering the market. In some cases, those companies have a long history of automotive excellence, like Ford and General Motors. More importantly, they have the resources to sustain them through the startup phase.
Analysts who are bearish on Rivian stock point out that in the first quarter, Rivian’s revenue was $661 million, with a loss of $535 million. That means the company is losing a lot of money every time it sells a vehicle. Established auto manufacturers might be able to sustain those losses for an extended period. Emerging companies cannot.
On the other hand, Rivian stock has its fair share of passionate bulls, and their argument is concise and straightforward: Rivian isn’t completely alone. The company is backed by e-commerce behemoth Amazon – and Amazon wants Rivian electric vans to power last-mile deliveries worldwide.
Amazon has already ordered 100,000 delivery vans from Rivian, and some of them are on the road in Germany right now. That fact alone is enough to persuade investors with a relatively high risk tolerance to buy RIVN stock.
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