Investing 30-05-2023 06:01 243 Views

Rivian stock price forecast: Here’s why I’m buying Rivian shares

Rivian (NASDAQ: RIVN) stock price has drifted upwards in the past few weeks as the recent sell-off eases. Shares of the electric vehicle manufacturing company have risen to $15, higher than the year-to-date low of $11.8.

Why I’m buying RIVN shares

Rivian share price has been a huge disappointment to initial buyers since it has crashed by more than 90% from their all-time high. As a result, the company’s market cap has plunged to about $14.2 billion. At its peak, the company was valued at over $100 billion.

There are several reasons for this plunge. First, the entire EV sector has underperformed, with companies like Lucid Motors, Tesla, Nio, and Mullen Automotive losing billions in value. This decline happened after the stocks surged during the pandemic.

Second, there are signs that the industry growth is slowing. As I wrote in this article last week, Xpeng, a leading Chinese manufacturer reported weak sales and margins in the first quarter. 

Further, Rivian stock has crashed because of the unprecedented cash outflow in the company. The firm incinerated over $6 billion in 2022 as it lost money on all cars it sold.

Still, I believe that now is a good time to buy Rivian stock for several reasons. First, despite the big losses, the company has a path to profitability. Analysts believe that Rivian will break even in 2028 when its revenue will soar to $32 billion. Rivian believes that it will turn a profit sooner than estimates.

Second, unlike other EV companies, Rivian’s products are rated well by owners. Motor Trend named R1T the Truck of the year in 2022. Similarly, J.D Power ranked it the best overall vehicle in 2022. It also received the top safety rating. This means that the company will likely see more demand going forward.

Rivian potentially improving margins

Third, the company will likely see improved margins in the coming quarters. As I wrote recently, nickel price has been steadily falling. Other industrial metals used in the EV industry like lithium and copper have been in a strong bearish trend recently. This is important since these metals are the most expensive parts of EV manufacturing.

Further, Rivian is now shifting from Bosch car motors to its in-house motors. This means that the company will now capitalize on its own technology instead of that made by Bosch. Rivian also has room for international expansion.

Still, there are risks to the bullish thesis. For one, there are still elevated dilution risks because of the long runway to profitability. Also, the company is facing strong competition from the likes of Ford and GM.

Rivian stock price forecast

Rivian share price has made a comeback in the past few days. It has formed a small inverted head and shoulders pattern and moved slightly above the 50-day exponential moving average. The Relative Strength Index (RSI) has moved above the neutral point at 50.

In all, I believe that the shares have bottomed, which will see it jump to the next resistance point at $22.38, the highest level on February 1. This price is about 50% above the current level.

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