NEW YORK, NEW YORK – NOVEMBER 09: The new all-electric pickup truck by Rivian, the R1T, sits at one … [+]
Electric truck maker Rivian
RIVN
Are its shares undervalued? It makes an amazing electric truck but it can’t make enough of them to fill the demand. Until Rivian can deliver more than it promises investors, its shares are not likely to soar.
Rivian’s 25,000 EVs in 2022
Rivian’s IPO featured an optimistic forecast of 2022 production. Sadly, in March 2022, Rivian said that it would produce half that amount — 25,000 EVs in 2022, according to CNBC.
On July 6, Rivian reiterated that amount. Meanwhile, Rivian “produced 4,401 of its electric R1T pickups and R1S SUVs in the quarter and that 4,467 vehicles were delivered to customers in” the second quarter, according to CNBC.
To meet that 25,000 EV target, Rivian will need to ramp up production in the second half of 2022. More specifically, after producing 7,969 vehicles since last 2021, Rivian will need to make 214% more vehicles — 17,031 — in what remains of 2022 to meet its goal.
Rivian’s Award Winning Product
Let’s start on an optimistic note — Rivian makes an award-winning vehicle. According to CBS, “MotorTrend magazine named it 2022’s Truck of the Year, raving that it redefines the genre.”
CBS News’ senior environmental correspondent Ben Tracy raved about the vehicle in a test drive. As Tracy told CEO R.J. Scaringe, “It almost seems like you’re trying to show people electric cars don’t have to be these bubble things you drive around in.”
Scaringe replied, “All of that was intended to challenge existing expectations and to create products that were exciting in and of their own right, not just because they’re electric.”
Demand for Rivian products is high and, at $80,000, so is the price. In 2019, Amazon executive chairman Jeff Bezos ordered 100,000 electric delivery trucks as part of Amazon’s plan to go carbon neutral by 2040.
During its first quarter earnings call, Rivian said that it had more than 90,000 reservations for the R1T and R1S vehicles, according to The Verge.
Rivian’s Financial Condition
Rivian still has lots of cash from its IPO — but it burned through a significant amount in the March-ending quarter. Specifically, it consumed $1.4 billion in cash from operations and investment, according to its Q1 quarterly statement.
If it were to keep doing that same amount of cash burn, it would run out of the $16.4 billion in cash on its balance sheet as of March 31 in about four years.
Rivian’s Supply Chain Woes
In short, Rivian has time to solve the production problems that are keeping it from meeting potential demand. Rivian has stumbled due to “parts shortages and related issues that have hampered efforts to ramp up production,” noted Bloomberg.
Rivian’s production facility has the capacity to produce 150,000 vehicles per year, according to CBS. And it plans to make more use of that capacity by “introducing a second shift at its factory in Normal, Illinois” and beginning construction of a $5 billion facility in Georgia, according to to TechCrunch.
An Optimistic Analyst Sets $70 Target Price
One analyst, Vijay Rakesh, recently cut his price target on Rivian by $10 to $70 a share — that’s 141% more than its current price.
He is optimistic about the Battery Elective Vehicle (BEV) industry and thinks Rivian can solve its production problems. According to CNBC, Rakesh wrote “Despite elevated macro risks, BEV could see strong [second half] ramps as China re-opens and demand improves, with BEVs potentially up >55% [in the second half (over) the first half.]”
While lowering his Rivian production estimate for the June quarter, he wrote that Rivian has “a well-laid-out path towards further vertical integration giving more control to production and delivery of vehicles.”
I would not jump into these shares until Rivian shows that it can consistently exceed investor expectations. If Rakesh is right, its second half report could disappoint — which would tamp down investor enthusiasm for its stock.
George is Digismak’s reported cum editor with 13 years of experience in Journalism