Pondering Over Rivian's Investment Strategy: Should You Purchase, Sell, or Maintain?
The electric vehicle (EV) market hasn't exactly taken off as anticipated, leaving some EV stocks, like Rivian Automotive, in a slump. The decline in Rivian's shares might pique the interest of investors, making them wonder if now is the time to dive into the EV stock market or if it's best to steer clear.
As with most life choices, the answer is subjective. To provide some guidance, let's explore the arguments supporting buying, holding, and selling Rivian shares in the current context.
The Case for Buying Rivian
I'm an owner of Rivian shares and believe there are several reasons that, together, make Rivian an intriguing buy at the moment.
First, Rivian just announced a joint venture (JV) with Volkswagen. The partnership presents multiple benefits for Rivian, including access to additional capital, equity in the JV, and the potential for a loan, all valued at $5.8 billion over the following years. A cash infusion of this magnitude is a significant boost for a company in the early stages of production and model launches (the R2 begins production in 2026).
In addition to providing Rivian with much-needed capital, this alliance with Volkswagen also paves the way for in-vehicle technology and electric vehicle architecture that Volkswagen needs for its forthcoming vehicles (VW will incorporate Rivian technology in some 2027 models). This alliance not only profits Rivian but also bolsters Volkswagen's EV lineup.
Furthermore, Rivian is focusing on gross profitability. The company made meaningful cuts to production costs last year, reducing material costs by 35% for its electric vans, which it manufactures for Amazon, and by a similar amount for the R1T truck and R1S SUV. These cuts have helped Rivian move closer to achieving its goal of reaching gross profitability when it reports its fourth-quarter 2024 financial results on February 20.
Lastly, Rivian's shares are remarkably affordable compared to some of its competitors. At a forward price-to-sales ratio of 2.9, Rivian's stock seems like a bargain compared to Lucid Group's forward P/S ratio of 9.3.
The Case for Holding Rivian
There's some overlap between the bullish arguments for buying and holding Rivian. However, one distinctive rationale for holding is to monitor Rivian's vehicle production and deliveries.
The company's vehicle production decreased by 13.5% to 49,476 units in 2024, while vehicle deliveries increased by a modest 3% to 51,579. Some of the slowdown may be due to consumers opting for hybrids over EVs and supply chain challenges resulting from a shortage of components from one supplier.
Management addressed the component shortage issue, and Rivian investors may be interested in observing how the company's production and delivery numbers play out in 2025. With Rivian preparing to launch its more affordable R2 SUV in 2026, which starts at $45,000, the upcoming numbers could provide valuable insights into Rivian's potential growth and market share capture.
The Case for Selling Rivian
If you've decided to sell Rivian shares, the reasons are likely similar to any stock sale scenario. These generally include:
- The initial reasons for buying the stock have evolved.
- You require funds for something else, such as tuition or a down payment on a house.
- You've found a better investment opportunity.
- You need to rebalance your portfolio.
As a bull on Rivian's long-term potential, I also understand that there could be better investment opportunities at the moment. For instance, artificial intelligence (AI) stocks have performed exceptionally well, tapping into a rapidly growing market that may be worth $15.7 trillion by 2030[ENR2].
In summary, the electric vehicle market presents both chances and obstacles for Rivian. The company's joint venture with Volkswagen and focus on gross profitability offer promising growth opportunities, but the challenging EV market also poses challenges. As with any investment decision, thoroughly exploring these factors and devising an informed strategy is important.
After considering the potential benefits of Rivian's joint venture with Volkswagen and its focus on gross profitability, some investors might decide to invest in Rivian shares, hoping to capitalize on its growth prospects. However, others might choose to hold onto their shares to monitor the company's vehicle production and delivery numbers, which could provide insights into its potential growth and market share capture. On the other hand, those who are looking for investment opportunities in rapidly growing markets may consider selling their Rivian shares and investing in artificial intelligence stocks, which are projected to be worth $15.7 trillion by 2030.
