Some stock traders might consider Rivian Automotive’s (NASDAQ:RIVN) ambitious production guidance to be bullish. However, this won’t be enough to put Rivian on the right track, financially speaking. I am neutral on RIVN stock because the firm’s premium pricing strategy is risky for the company and its stakeholders.
Rivian Automotive is an electric vehicle (EV) manufacturer, which isn’t an easy field to compete in nowadays. Succeeding as an EV maker requires a certain level of responsiveness to the needs and demands of car buyers, who are undoubtedly struggling with elevated inflation this year.
Amid this challenging backdrop, it’s debatable whether Rivian Automotive’s management is using the best pricing strategy. Furthermore, Rivian’s ability to produce vehicles is duly noted, but selling them to the car-buying public is another matter entirely. Consequently, the risk-to-reward proposition for RIVN stock doesn’t look very appealing now.
Rivian Automotive Sticks to Its EV Production Outlook
When Rivian Automotive released its Fiscal Q1-2023 earnings, one thing that RIVN stock traders watched closely was the company’s full-year production guidance. As it turned out, the company reaffirmed its goal of producing 50,000 vehicles this year. Is this necessarily a positive development, though?
Admittedly, maintaining an optimistic production schedule suggests that Rivian Automotive’s management is confident. Yet, let’s not confuse confidence with success. Bear in mind, Rivian only produced 9,395 vehicles during 2023’s first quarter. Thus, the company wasn’t on track to produce 50,000 EVs in a year’s time.
Plus, Rivian Automotive delivered 7,946 vehicles in Q1-2023, so don’t assume that the automaker is selling every EV it manufactures. Really, it’s the sales figures that matter the most, not the production numbers. Thus, Rivian’s $661 million in quarterly revenue isn’t too impressive, as Wall Street was looking for $665.28 million.
This isn’t to suggest that Rivian Automotive is in major trouble by any means. I tend to concur with the assessment of Barclays (NYSE:BCS) analyst Dan Levy, who opines that while Rivian is “not out of the woods yet,” the “worst has passed” for the EV maker. For what it’s worth, Rivian Automotive posted quarterly EPS of -$1.25, which exceeded the consensus estimate of -$1.62 per share. Still, it will be crucial for the company to continue moving toward profitability, or at least breakeven, in the coming quarters.
Rivian Automotive is Making a Mistake with Its Vehicle Pricing
Rivian Automotive CEO R. J. Scaringe is crystal clear in his stance on vehicle pricing. He recently declared, “Given the data that we have on customer behavior, the aggregate result we see is a continued upward shift in ASPs [average selling prices].”
During a time of high inflation and recession worries, one has to wonder whether Scaringe is being sensitive to the needs of Rivian Automotive’s customers. With the Rivian R1T starting at $73,000 and the R1S starting at $78,000 (and, of course, out-the-door prices are almost substantially higher than the starting prices of new vehicles), Scaringe really ought to consider being more flexible and competitive in his pricing strategy.
Scaringe added, “These are the products that are building our brand. They’re not meant to sell hundreds of thousands of units.” To me, this sounds like an excuse to price some EV shoppers out of buying a Rivian Automotive vehicle. On this topic, I fully concur with the opinion of Third Bridge analyst Orwa Mohamad, who cautions that Rivian Automotive “needs to be careful not to increase its price tag too much while more established competitors are rapidly gaining momentum in the market.”
Is RIVN Stock a Buy, According to Analysts?
Turning to Wall Street, RIVN stock comes in as a Moderate Buy based on 11 Buys, six Holds, and one Sell rating. The average Rivian Automotive price target is $24.39, implying 88.6% upside potential.
Conclusion: Should You Consider RIVN Stock?
Rivian Automotive is a promising EV manufacturer. However, it’s alarming that Scaringe said his company’s near-term plans don’t “necessarily” include “lower prices on the things we’re offering today.”
Moreover, don’t assume that Rivian Automotive’s robust EV production outlook will translate to improved sales or a continued path to profitability. All in all, I view RIVN stock as neutral right now, and prospective Rivian investors should consider exercising caution for the time being.
