Electric vehicle manufacturer Rivian captivated investors when it debuted on the public markets in November 2021. Backed by early investments from Amazon and Ford totaling over $1.2 billion, the owner of the first all-electric pickup truck seemed poised to drive forward as the next major EV maker.
Yet in the span of just one year, sentiment around Rivian has veered sharply. After briefly surging to a peak share price of $179 shortly after its IPO, Rivian plummeted nearly 90% to trade under $30 by late 2022.
For a company previously billed as the "next Tesla", Rivian‘s crashing stock price begs an important question – what went wrong? In this comprehensive deep dive, I‘ll analyze the major dynamics behind Rivian‘s decline and evaluate whether the recent pessimism leaves an opportunity for long-term investors.
Overview: Rivian‘s Origin Story and Strategy
Before assessing why Rivian‘s stock price crumbled, it‘s important to understand the company‘s background and what makes their business model unique.
Founded in 2009 by CEO RJ Scaringe, Rivian is an electric vehicle manufacturer headquartered in Irvine, CA focused specifically on the consumer adventure market. The company currently produces two flagship vehicles – the R1T electric pickup truck and R1S electric SUV.
Unlike other EV startups targeting mass-market sedans and compacts, Rivian intentionally pursues a niche of outdoor enthusiasts looking for capable but sustainable trucks and SUVs to take off-roading or camping while preserving the environment.
Additionally, Rivian utilizes a flexible skateboard architecture allowing their drive systems, battery packs, chassis, and other components to be packaged efficiently across different vehicle models. By leveraging this modular platform, Rivian can optimize development costs and accelerate manufacturing ramp-up times compared to traditional automakers constructing vehicles from the ground up.
To fuel its ambitious growth plans, Rivian has raised approximately $10.5 billion to date from major institutional and strategic investors. Key backers include:
- Amazon: $1.7 billion investment. Amazon has also ordered 100,000 electric delivery vans from Rivian to electrify its fleet.
- Ford: $500 million investment. The two companies recently cancelled plans to jointly developed an electric vehicle.
Now with the gears fully in motion on rolling out the R1T and R1S models to customers, while also filling large-scale commercial orders, Rivian‘s future appeared bright – at least initially.
So what‘s changed in the past year to decimate Rivian‘s once jaw-dropping $100+ billion valuation?
Diving into the Perfect Storm Punishing Rivian
Rivian‘s swift fall from Wall Street darling to unloved outcast resulted from an unfortunate convergence of deteriorating economic conditions, intensifying competition, and company-specific execution stumbles.
I. Turbulent Broader Markets Hammer High Growth Stocks
The initial cracks in sentiment appeared alongside a historic drawdown for both financial markets and speculative assets that accelerated in early 2022.
Soaring inflation reaching 40-year highs prompted an ultra-hawkish policy response from the Federal Reserve. As interest rates rose fastest in over 30 years, investors grew concerned over slowing economic growth and potential recession risks.
The adjacent table outlines key economic factors driving the sell-off:
| Factor | 2022 Impact |
|---|---|
| Inflation | Persisted above 8%, prompting aggressive Fed rate hikes |
| Interest Rates | ~4 percentage points of tightening to highest since 2008 |
| GDP Growth | Decelerated from 5.7% in 2021 to estimated 1.4% for 2022 |
| Consumer Sentiment | Plunged to lowest on record outside recessions |
With risk assets plunging across asset classes like unprofitable technology stocks and cryptocurrencies, Rivian fell victim to the high-growth doom loop.
The adjacent chart shows electric vehicle manufacturers significantly underperforming traditional automakers and the S&P 500 over the past year:
| Company | 1-Year Stock Price Change |
|---|---|
| General Motors | -30% |
| Ford | -53% |
| Tesla | -65% |
| Lucid | -80% |
| Nio | -70% |
| Rivian | -90% |
| S&P 500 | -18% |
As an pre-revenue manufacturer aimed at disrupting the auto industry, Rivian remained especially vulnerable to rising rates and fears of an economic downturn as speculative assets fell out of favor.
II. Supply Chain Chaos Hampers Production
Alongside the challenging macro backdrop, Rivian struggled with company-specific headwinds stoking investor anxiety.
The most damaging was production delays starting in early 2022. Like virtually all automakers, Rivian battled parts shortages, material cost inflation, and logistics logjams hampering manufacturing.
But with output still gearing up, Rivian bore an outsized impact of only delivering ~1,200 vehicles in 1H 2022 – badly lagging expectations. Management cut full-year guidance in half to just 25,000 units, raising concerns over global supply chain disruption impeding the ramp.
Missed production targets removed a crucial bull case pillar around ramping capacity to work through Rivian‘s hefty preorder backlog. Coupled with extreme market conditions, growth stumbles proved costly.
III. Sweeping Vehicle Recall Erodes Credibility
Pouring further fuel on the raging stock inferno, Rivian announced a sweeping vehicle recall impacting nearly all R1Ts and R1Ss produced weeks after Q1 results missing estimates.
The company discovered a safety issue related to fastener nuts potentially loosening on the front suspension assembly if driven aggressively on rough terrain. To address the concern, Rivian recalled all ~13,000 vehicles delivered – a plainly negative signal eroding confidence in quality controls during such an early stage of production.
This trio of harsh macro weakness, operational stumbles limiting output, and an urgent recall of virtually brand-new vehicles snowballed into the stock‘s epic 90% peak-to-trough collapse.
How Wall Street Analysts View Rivian‘s Outlook
Despite the disastrous 2022 endured by shareholders, all is not lost according to Wall Street experts closely tracking Rivian‘s upside potential if execution issues subside.
The following table summarizes 2022 price targets from 8 top analysts:
| Firm | Rating | Price Target | Upside to Current |
|---|---|---|---|
| Morgan Stanley | Overweight | $147 | +420% |
| RBC | Outperform | $116 | +307% |
| Deutsche Bank | Buy | $90 | +186% |
| Wells Fargo | Equal Weight | $40 | +36% |
| Piper Sandler | Neutral | $28 | -8% |
| JPMorgan | Neutral | $24 | -24% |
| Goldman Sachs | Neutral | $24 | -24% |
| Barclays | Equal Weight | $20 | -41% |
With targets ranging from $20 on the low end up to $147 on the high side, a wide dispersion exists on how analysts gauge Rivian‘s risks and opportunities. However, the average upside stands at a robust +90% over the next 12 months.
UBS analyst Patrick Hummel summed up both sides: "Rivian has arguably the most appealing brand in EVs and technology leadership in battery systems but needs to overcome production bottlenecks."
Morgan Stanley analyst Adam Jonas added: “Rivian’s opportunity for growth remains one of the most attractive in the electrification landscape.”
So while the path ahead remains laden with challenges, analysts see blue skies forthcoming if execution stabilizes.
My Take: Constructive Long-Term Outlook, But Risks Can‘t Be Ignored
In my view as a seasoned technology stock analyst, investors with multi-year time horizons stand to potentially realize tremendous upside owning Rivian at today‘s depressed valuations – although risks to bullish outcomes still loom large.
Expanding on my methodical approach to evaluating growth stocks, I see 5 key pillars underpinning my favorable perspective:
1. Mainstream EV Adoption Still in Early Innings – Electric vehicles comprise less than 5% of US auto sales today, underscoring the sheer size of Rivian‘s addressable market as adoption accelerates driven by more affordable battery costs and wider model availability beyond niche automakers.
2. Rugged, Outdoorsy Brand Fills White Space – Unlike targeting luxury sedan buyers like Lucid or urban consumers emphasizing range and charging like Tesla, no other automaker directly caters to adventure seekers wanting electric trucks and SUVs purposely built for off-roading. Rivian attacks an uncontested niche.
3. Flexible Skateboard Platform Enables Faster Innovation – By packaging motors, batteries, chassis and other hardware efficiently into a single module, Rivian holds a key strategic advantage streamlining manufacturing across different vehicle models that should propel expansion.
4. Backed by Patient, Deep-Pocketed Strategics – Thanks to over $10 billion invested from Amazon and Ford who hold large equity stakes, Rivian possesses an exceptionally strong balance sheet relative to pre-profit EV peers to weather market turbulence.
5. Compelling Risk/Reward Profile at ~$30 Valuation – Trading over 85% below its post-IPO peak and at less than 1x 2025 projected sales, skeptical investor sentiment seems to heavily discount achievable growth trajectories. The risk-reward setup skews positively.
However, to play devil‘s advocate, I must also stress looming risks threatening bullish convictions, including:
Recession – A downturn limiting access to capital could create severe funding challenges. Rivian holds ample cash today, but with sizeable near-term cash burn, liquidity risks may arise from prolonged economic weakness.
Ramp Uncertainty – Given tight production timelines, any further setbacks meeting output goals could disappoint investors banking on volumes to rapidly scale. Competition won‘t stand still either.
Quality Issues – Early manufacturing defects requiring urgent recalls like Rivian experienced severely damage credibility. They must demonstrate consistent execution.
Overall my glass-half-full view lies counter to the doom-and-gloom consensus on Rivian. But prudent investors must incorporate both bull and bear perspectives into their analysis.
In Conclusion: Storm Clouds Parting Could Spark Powerful Rebound
In closing, Rivian‘s nightmarish stock performance in 2022 resulted from deteriorating business conditions, operational stumbles, and quality control issues all coalescing to sink investor confidence after an enormously successful IPO just one year ago.
Yet for investors taking a long-term view, the steep disconnect between Rivian‘s growth prospects and valuation likely offers a compelling opportunity. Once production normalizes and markets stabilize, massive upside potential exits.
Of course, risks abound. Recession threats loom large over unprofitable automakers. Competitors won‘t stand idle either. And more manufacturing turbulence could kill momentum.
However, with shares enormously discounted relative to last year‘s peak market euphoria, I believe risk-tolerant investors stand rewarded over time as Rivian grows into its immense promise. The storm clouds punishing Rivian appear closer to passing – and brighter days may lie ahead.
