Stocks of electric vehicles have underperformed lately. The electric vehicle industry has lost some of its appeal as a result of a crippling supply-chain problem, regardless of whether it’s Rivian Automotive, Inc. (NASDAQ:RIVN), Lucid Motors (LCID), or Nikola Corporation (NKLA). This decline in appeal could also serve as an incentive to put money into struggling electric vehicle startups like Rivian Automotive.
The electric vehicle manufacturer, in my opinion, has the lowest production risks in the sector because of a sizable cash hoard of $16.4 billion, which now represents 65% of the market value of the business. The ex-cash price of Rivian Automotive’s stock is attractive.
Status of Production and Pre-Orders at Rivian Automotive
In May, Rivian Automotive declared that its prior production forecast of 25K units in 2022 stands. Due to ongoing supply-chain issues, the EV manufacturer decreased its production forecast from 50K to 25K vehicles in March.
The EV company’s risks are reduced by Rivian Automotive’s affirmation of the 25K unit production target. There was a chance that supply-chain problems could have gotten worse to the point where management would have had to lower its production guidance once more.
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1Q-22 Financial Results
Rivian Automotive is drastically losing money, but that was to be expected. In order to run its factory more effectively in 2022, the company is currently concentrating on increasing R1T, R1S, and EDV production and resolving production snags.
Despite sizable losses, Rivian Automotive’s performance is anticipated to significantly improve in 2023. On an adjusted EBITDA basis, Rivian Automotive’s loss in 1Q-22 was four times greater than it was in the prior quarter. However, investors should start to notice significant revenue implications as manufacturing picks up in 2H-22. The market anticipates that Rivian Automotive’s sales will increase by 252 percent to $6.47 billion in 2019.
Low Risk at Rivian Automotive Is the Root of Its Exceptional Balance Sheet
Do you know an EV company with more than $16 billion in cash sitting on its balance sheet, ready to be used? Exactly.
The huge cash reserves held by Rivian Automotive allow the electric vehicle manufacturer to increase production without having to worry about finding new funding from investors, which I imagine is getting more challenging now that the U.S. economy is on the verge of a crisis and investors are becoming more risk-averse.
Not only does Rivian Automotive have more than enough cash to support scaling up production and deliveries, but its $16.4 billion in cash on the balance sheet represents an astounding 65 percent of the company’s market value.
With roughly $18.24 per share in cash, Rivian Automotive can value its successful EV operations at $9.76 per share (facilities, service and distribution network, IP, etc.). The total equity value of Rivian Automotive’s operations, based on 901 million outstanding class A and class B shares, is $8.8 billion.
With projected sales of $6.5 billion in 2023, Rivian Automotive has a sales multiple of 1.4x after accounting for the significant capital resources of the business. For an electric vehicle company that the market anticipates will grow by 252 percent next year, a sales multiple of 1.4x is low. Without making a cash adjustment, Rivian Automotive has a sales multiple of 3.9x.
Why Rivian Stock Might Decline: Supply
The two most worrying aspects of starting an electric vehicle company are chains and inflation. Consumers have not yet been deterred by higher unit costs or longer waiting lists, and the fact that the company added 10K new pre-orders to its reservation lists shows that there is a high demand for Rivian Automotive’s EVs.
Investors may stay away from the electric vehicle industry, where the majority of businesses are still in the red, as a result of an economic slowdown that is worse than anticipated and rising component prices.
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The stock price of Rivian Automotive has decreased in 2022, but the company is progressing in increasing production capability, and price increases have not slowed down consumer interest or demand.
Rivian Automotive stands out from rivals who must increase manufacturing with much less resources thanks to its strong cash position and balance sheet.