Since last month, Rivian (NASDAQ:RIVN) managed to trade in a $38 to $45 range. Despite bears holding a 10% short float against RIVN stock, markets likely priced downside expectations for the electric vehicle (EV) supplier.
The company is unlikely to report any negative news that will question its five- to 10-year prospects. Shareholders already expect Rivian to post more losses as it invests heavily in the business. They expect limited unit sales after the company guided for 25,000 vehicle productions this year. Holding Rivian as net losses increase every quarter will not come without risk.
Rivian lost billions in the last year. Expenses of $2.07 billion in the last quarter exceeded its paltry $54 million in revenue. The promising EV firm’s vehicle production target is a bright spot, but this will still result in an adjusted EBITDA loss of $4.75 billion. Growth investors must expect losses.
Rivian has $2.6 billion in capital expenditures in the year ahead. Founder, Chairman & CEO R.J. Scaringe said its capex is due primarily to the expansion of its normal factory. It is investing in corporate facilities, service operations and experience bases. In effect, Rivian needs to consolidate its in-house technology with its operations. That way, it will develop its software alongside its EVs.
Markets are growing increasingly nervous about investing in companies that lose money, have excess debt or are not demonstrating growth. Rivian investors need only worry about its losses. Fortunately, it raised $13.53 billion from its initial public offering. It issued capital stock worth $2.66 billion, $1.23 billion from issuing long-term debt and another $2.5 billion from convertible notes.
It has plenty of cash to fund its capital requirements and cover the negative cash burn in the next several quarters. Although pre-orders will not excite investors, they still represent future revenue potential. For example, Rivian believes it can deliver 55,000 R1 vehicles by late 2023.
Rivian stock is in bargain territory from here. The company trades at a market capitalization similar to that of Lucid Group (NASDAQ:LCID). Rivian has an advantage because its electric truck appeals to consumers. Lucid is relying on high-end EVs to create buzz. Rivian has a wider market.
Consumers are more likely to want a vehicle that supports off-road activities. Look for the trend of people spending more time outdoors and camping. This might increase bookings and Rivian’s revenue potential in the next few years.
— Chris Lau
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Source: Investor Place