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Why Rivian Shares Have Been Taking Off This Week

What happened

Rivian Automotive (NASDAQ: RIVN) has been a widely followed electric vehicle (EV) stock since its successful IPO last fall. But the realities of ramping up manufacturing volume along with supply chain and inflation headwinds have soured investors’ taste for the stock recently. Rivian shares are down about 40% in the last three months. But this week marked a turnaround. The stock was up as much as 15.5% at its peak this week and still remains 8.6% above last Friday’s close on Thursday afternoon, according to data provided by S&P Global Market Intelligence.

Image source: Rivian Automotive.

So what

Some of the weekly gain comes from the tailwind of a rebound in many high-growth stocks. The tech-heavy Nasdaq Composite index itself has jumped 3% this week. But the EV sector has been particularly strong as several manufacturers have announced price increases to help offset rising raw material costs. Even some legacy automakers like General Motors have boosted prices recently on EV offerings

Now what

Many investors remain bullish on EV makers based on the continued strength in demand. Rivian had about 90,000 preorders for its R1 platform consumer trucks as of May 9, and another 100,000-vehicle order from early backer Amazon for its electric delivery van (EDV). 

Rivian also has about $17 billion in cash that CEO R.J. Scaringe has said will carry it through 2025. That’s when the company plans to have a second production facility built as well as when it expects to be ramping up production on its next-generation R2 platform vehicles. 

The question will be whether the company is bringing in meaningful revenue and producing positive cash flow by that time. Most of its preorder backlog will be sold to customers at prices quoted at the time reservations were made, prior to an increase announced this spring. That’s going to pressure Rivian’s margins for at least the next year or two. The company only plans to produce 25,000 vehicles this year, and one third are expected to be the EDVs for Amazon. 

This week’s jump in shares isn’t as impressive when one looks at the stock move in total so far in 2022. Shares remain down more than 70% year to date, which puts this week’s move more in perspective. The stock is likely to remain volatile as Rivian works to surmount its supply chain and cost challenges. Investors should keep an eye on how much production is expected to improve in 2023 once the company offers guidance. If it doesn’t announce a significant jump, expect shares to remain down for much longer. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Howard Smith has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

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