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Rivian Stock: Why It May Continue To Struggle Past Earnings

Rivian’s first earnings report ever looked fine, and the narrative for the next several years remains upbeat. But here is why RIVN stock may dip further into the end of 2021.

On its first earnings day ever, one popular electric vehicle maker saw its shares plummet. On December 16, Rivian stock  (RIVN) - Get Rivian Automotive, Inc. Class A Report dipped 5% during regular trading hours and another 10% after the closing bell. In the process, roughly $15 billion in market value vanished into thin air.

Figure 1: Rivian's R1T electric truck.

Figure 1: Rivian's R1T electric truck.

The culprit was a decent earnings report that was poorly received by the market. Today, Wall Street Memes explains why RIVN stock could continue to struggle into the end of 2021, regardless of financial results and upbeat expectations for 2022 and beyond.

(Read more from Wall Street Memes: Why Betting Against AMC Stock Is Still a Bad Idea)

Rivian’s earnings looked fine

Although Rivian stock is valued at about $100 billion, the company’s P&L looks very atypical. In fiscal Q3, year-to-date revenues were reported at an immaterial $1 million, equivalent to 11 vehicles sold, which suggest an amusing price-to-sales multiple of 100,000 times on shares.

The company missed on earnings by quite a bit, as Rivian continues to invest heavily in research and production in these very early stages of its life. Cash outflow from operations has reached $1.5 billion so far in 2021, which has been financed with over $2.5 billion in stock issuance and another $2.5 billion in convertible bonds.

But to be fair, probably none of it matters to investors. RIVN stock’s value is almost purely a function of expectations for what the company can become in the very long run. In that regard, the following developments should support optimism:

  • As of mid-December, Rivian had booked over 70,000 orders for its R1 trucks (again, remember that the company has sold only 11 of them through Q3 of this year). Assuming a price tag of $90,000 per vehicle, we are looking at over $6 billion in revenues secured in the pipeline.
  • Rivian plans on expanding production capacity to 600,000 units within the next few years — one-third of it out of its existing plant in Illinois, and two-thirds coming out of a new facility in Georgia that will break ground in the summer of next year.
  • Only a couple of days before earnings, Rivian’s R1T had won MotorTrend’s “2022 Truck Of The Year”. Shortly after that, Edmunds announced that the same vehicle had been voted Editor’s Choice. It is easy to imagine demand for Rivian’s vehicles benefiting from this recent wave of awards.

None of it may matter for RIVN now

Sure, Rivian’s fiscal Q3 P&L may have seemed laughable to some. The company is clearly in its very early stages of growth, and near-zero revenues is a rarity for a publicly traded company. But the longer-term narrative looked very compelling, in my view.

The problem for Rivian stock is that the current market environment is starting to look very tough for it and for other high-growth, low revenue and low earnings companies.

During the worst of the pandemic, investors chose to look beyond the short term, setting aside doubts about the global economy in the following few turbulent months. Liquidity was plentiful, and long-term growth opportunities seemed appealing at interest rates near zero.

But we may have turned the page in late 2021. The thick of the COVID-19 crisis is behind us, and the Fed has started to ease on monetary support. Investors have begun to look for good value proposition and become less excited about the promises of far-out financial results.

So far in December, value stocks  (VTV) - Get Vanguard Value ETF Report have produced gains of nearly 6%. At the same time, growth stocks associated with innovation  (ARKK) - Get ARK Innovation ETF Report have lost 13% of their market value.

In this scenario, it will be tough for a company like Rivian to support a market cap of $100 billion on the back of expectations for 2025, for example — at which point Wall Street still expects the car maker to turn a net loss, according to Seeking Alpha.

For this reason, I would not be surprised to see RIVN stock continue to lose steam through the end of the year at least, or until the über-growth trade makes a comeback.

Twitter speaks

Rivian reported fiscal Q3 results. With only $1 million in revenues booked, the highlight were upbeat expectations for the long-term future. Is this enough to justify market cap of $100 billion?

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)