With the speculative fervor of 2021 long gone, 2024 is starting off as a year of caution and consideration. Some risk-on assets, like Rivian Automotive (NASDAQ:RIVN), are deeply out of favor — but then, this could be an all-clear signal for contrarian investors.
I’d be hard-pressed to call Rivian stock a value stock since Rivian Automotive has no earnings and, therefore, no price-to-earnings (P/E) ratio. For what it’s worth, however, Rivian booked $1.315 billion worth of revenue in last year’s fourth quarter. Furthermore, on a trailing 12-month basis, Rivian’s price-to-sales (P/S) ratio is 1.95, which isn’t outrageously high.
Investors look at Rivian for potential growth rather than deep value. The problem is, it’s awfully hard to envision future growth when the share price continues to head south.
Are layoffs an “ominous sign” for Rivian?
By now, there’s a good chance you’ve heard that electric vehicle (EV) demand is softer than many people expected it to be. That’s a problem for EV stock investors during a time when interest rates are elevated, borrowing costs are high and mere hype won’t keep share prices afloat anymore.
Consequently, EV manufacturers are showing signs of wear and tear. Lucid Group (NASDAQ:LCID) slashed its vehicle prices multiple times. Ford (NYSE:F) just cut the prices of several F-150 Lightning model variants, and the company moved 1,400 workers off of Ford’s F-150 Lightning production line.
Then there’s Tesla (NASDAQ:TSLA). The famous EV maker has reduced its vehicle prices multiple times, and Tesla’s first-quarter 2024 vehicle-delivery miss established an unsettling tone for the industry as a whole.
That’s not all, though. Tesla recently announced its plans to lay off more than 10% of the company’s staff, and one well-known Wall Street expert is calling this an “ominous sign” for the automaker.
Wedbush Securities analyst Daniel Ives has a Buy rating and a bullish $300 price target on Tesla stock. Nonetheless, Ives’ remarks to Yahoo! Finance aren’t particularly optimistic.
“This is an ominous signal that speaks to tough times ahead for Tesla as [CEO Elon] Musk navigated this Category 5 storm… Demand has been soft globally, and this is an unfortunately necessary move for Tesla to cut costs with a softer growth outlook,” Ives warned.
What does this have to do with Rivian Automotive? First of all, what’s bad for Tesla is worse for Rivian. If there’s a “Category 5 storm” underway, at least Tesla can withstand it for a while, as the company is capital-rich and profitable. Rivian, in contrast, is a much smaller, income-negative business venture.
Unfortunately, the same “ominous sign” for Tesla also happens to apply to Rivian Automotive. As it turns out, like Tesla, Rivian also disclosed that it’s “reducing its salaried workforce by approximately 10%.”
Affordable vehicles may be the answer
Now, the 8% RIVN stock drop on April 15 makes a lot more sense. It didn’t happen because of anything specific to Rivian Automotive, and of course, it wasn’t related to April 15 being tax deadline day.
Rather, the share-price decline resulted from the market’s generalized EV-market malaise. Tesla had just disclosed its planned 10% staff reduction, which put Rivian’s shareholders in a bad, or even worse mood, if they were already feeling bad.
After that drop, Rivian stock traded at its lowest price ever. It’s amazing to consider that the shares cost more than $100 apiece in late 2021.
Current and prospective Rivian shareholders should readjust their price targets if they haven’t done so already. $100 is probably a pipe dream at this point; even Wall Street’s average forecast of around $17 seems like a long shot.
A more reasonable near-term target, I’d say, would be $12. Perhaps the stock can get there if EV adoption ramps up, and vehicle affordability will be a major factor in this equation.
At least one can say that Rivian Automotive is starting to respond to the need for more affordable EVs. Rivian’s relatively new midsize SUV model, the R2, is “expected to start around $45,000,” according to the company.
Moreover, Rivian reported that the R2 “attracted more than 68,000 reservations” in a very short period. If Rivian Automotive and the EV industry needed a clear signal that the public wants cheaper cars, this would be it.
Where does this leave investors, then? While it’s hard to call Rivian stock a good value, it’s certainly intriguing at its recently discounted price. With that in mind, risk-tolerant EV-market speculators could consider taking a small share position in Rivian Automotive.
