Rivian Automotive Inc. (RIVN, Financial) seems to be in an advantageous financial position for future growth despite the recent cancellation of the Mercedes-Benz (XTER:MBG, Financial) deal. This could work out better for value-oriented investors as circumstances have made the stock appealing.
Furthermore, due to its continued innovation, Rivian can easily meet the quickly rising demands of the industry. All these factors suggest it is very likely the company is poised for significant long-term growth despite short-term market volatility.
Rivian's long-term prospects look good
In 2021, Rivian made its long-awaited public debut. While its revenue has risen since then, the electric vehicle manufacturer has yet to turn a profit due to the increasing cost of sales. This is because the company has prioritized forming industry partnerships rather than organically building an infrastructure for its growth.
One such partnership is with Amazon.com Inc. (AMZN, Financial). In September, the company agreed to provide some of its electric vehicles to replace gas-powered delivery vans for the e-commerce giant's logistics services. Although establishing such partnerships put a severe strain on its budget in the short term, Rivian benefits from these deals over the long run as they continue to solidify its place in both the automotive and technological industries.
While Rivian's decision to pause its partnership with Mercedes appears to be taking a step backward, it could mark meaningful progress in other parts of the business. The backlog for the company's consumer pickup truck and SUV offerings remain at an impressive 114,000 orders despite attempts to ramp up production at its Illinois factory. This is a good indication that Rivian has been successful in garnering considerable attention and interest from consumers. With such strong momentum, management may have decided to hit the brakes on the Mercedes venture until it can adequately service all buy orders.
The electric vehicle industry slump created an attractive entry point
Despite this impressive growth, the winter brought a mass sell-off in EV stocks that saw prices take a hard hit. Analysts attribute this to investors looking for safer stocks amid uncertain economic conditions. Rivian's stock has been particularly affected by these events, as it dropped around 83% in the last year.
While electric vehicles are seeing a surge in popularity and sales, this booming industry is hampered by supply disruptions and ongoing semiconductor component shortages. These obstacles are largely due to the coronavirus pandemic, which continues to have crippling economic effects. While some relaxation of restrictions has been implemented in China, a crucial EV market, it remains an economic weak spot; its realities hinder development and growth across the EV industry and other sectors of the global economy. Companies developing EVs worldwide must grapple with these practical concerns that could stop their efforts despite growing demand.
Many are optimistic about the industry's prospects despite the current bearish sentiment, however. Governments worldwide are committed to a green future, and electric cars are a big part of this vision.
The rapid growth of electric vehicles across different segments, led by increasing consumer awareness and favorable government legislation, sets the tone for an exponential growth trajectory for Rivian over the next decade. Notably, government incentives ranging from outright purchases to tax credits further promote ongoing adoption rates, with further growth expected shortly thereafter. In addition, its expanding infrastructure for charging will likely drive sustained revenue creation for Rivian over the long term. If anything, the 2022 slump has created an attractive entry point for investors looking to cash in on the stock's long-term potential.
Rivian is focusing on a niche that will give it an edge
Despite intense competition in the EV market, Rivian seems impervious, with its focus squarely placed on SUVs. Two of its most in-demand models are virtually without competition, selling out quickly and creating an order backlog exceeding 114,000 vehicles, excluding the 100,000 delivery vans from Amazon.
It is no wonder why Rivian is ramping up production at a rapid pace - the September quarter saw production increase by 67%. If this trend of exponential growth continues, it will not take long for the company to capture a significant portion of the EV market over more recent newcomers.
Takeaway
Despite the decrease in Rivian's share price in 2022, this could be a good opportunity for potential investors to get involved, especially since the company has already established a presence in the global EV market. This kind of foothold means Rivian already has a base of knowledge and resources to use against its newer competitors and knows what kind of designs and styles could potentially be successful or need changes in order to succeed.
On top of this, the competitive atmosphere might have other benefits, such as greater innovation and collaboration between companies that may have initially competed against each other. Although the industry is growing more competitive, it can also be an advantage for Rivian.
