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Rivian stock is crashing! Is it now a buy?

Electric cars charging in station

Rivian Automotive (NASDAQ: RIVN) has had a dreadful month since listing via an initial public offering (IPO) in November. At the time, I wrote about how Rivian stock reminded me of the dotcom bubble. I wouldn’t say it’s reached crisis point like the dotcom era, but the signs are a bit concerning given how much the share price has fallen of late.

However, the company released its maiden quarterly earnings report last night. Let’s take a look at the results to see if the recent share price weakness has been overdone.

Rivian’s quarterly earnings

Starting with a positive, and Rivian was able to deliver its first customer vehicle, the R1T, in its third quarter to 30 September. The company also said that by 15 December a further 386 vehicles had been delivered.

These production numbers may look small. And they are. But in Rivian’s IPO prospectus, the business described itself as being at the “development stage”. Therefore, delivering any vehicles to customers is a huge milestone for the company.

My main issue with the investment case back then was the large market value ($127bn at the time), and the fact that the company made zero revenue. Now that Rivian is delivering customer-ready electric vehicles (EVs), it should be in a position to start generating revenue.

However, although this was progress from the IPO, the company actually missed its production targets. This is what it said in its shareholder letter: “We expect to be a few hundred vehicles short of our 2021 production target of 1,200.

My concern here is that 1,200 cars isn’t a great deal to start with. Missing by a few hundred says to me that there are many challenges to solve with Rivian’s production line before it can compete with the likes of Tesla. And that’s not to mention the other established car manufacturers that are producing their own EVs.

Rivian stock dropped 10% in after-hours trading when this news was released. The market value is $97bn now, which still seems very high to me considering the challenges that lie ahead.

Is Rivian a buy?

I think there could be an exciting business here once the production line issues are solved. The EV market is booming right now and shows no signs of slowing. This could really boost Rivian’s growth prospects.

However, the company has a long road ahead. Tesla also struggled to ramp up its production line. Rivian’s first earnings report highlights the challenge that lies ahead here.

I also view the industry as low-margin, and capital-intensive. It’s going to take a lot of investment to get Rivian’s production line running at volume. The fact that the company is loss-making, and generates little in the way of revenue, makes this an even greater risk to consider.

Taking everything into account, I view the market value of $97bn as too high for the risks ahead. I won’t be buying Rivian stock today as I think there are other growth stocks to consider.

The post Rivian stock is crashing! Is it now a buy? appeared first on The Motley Fool UK.

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Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.