For those who have some interest in investing in the automotive industry, there are some intriguing long-term trends now underway that have real potential to boost a stock portfolio. One obvious trend involves electric vehicles (EVs) and it began largely on interest in Tesla (TSLA 0.23%). A more recent trend is deciding which of the start-up EV companies can grow into a true Tesla rival.
While the interest does go to the potential performance of each company, most investors are admittedly more focused on the stock performance of these EV makers. As EV companies go, Rivian (RIVN -7.26%) often gets mentioned as a potential manufacturer who could eventually compete with Tesla.
As for stock performance, does Rivian have a chance to come close to matching Tesla's 122% year-to-date rally?
Rivian's rally is underway
Rivian got a late start on its 2023 rally -- but that only makes its short-term potential all the more intriguing. Its stock is now up 40% year to date (with all the gains coming in the past month), but that still leaves plenty of space between it and Tesla's 122% rally. What's driving the current spike, and what could help it close the gap further?
Until Rivian's recent rally, the stock generally underperformed, going all the way back to shortly after its initial public offering in November 2021. Much of that poor performance was related to investor concerns that demand for the company's vehicles was waning. There were also supply chain issues related to its R1T pickup and its quad-motor design that required separate electric motors for each wheel. That created a bottleneck for production and deliveries.
Management eventually addressed the problem by switching to its internally developed Enduro drive unit. That should help resolve the supply chain issue and also reduce costs. It also began offering a somewhat less powerful dual-motor version of the R1T.
So far, the results have been positive. In the second quarter, Rivian produced 13,992 vehicles and delivered 12,640, compared to the first quarter's 9,395 and 7,946, respectively. Further, its second-quarter deliveries easily topped the estimates of 11,000 units.
Other factors could add fuel to Rivian's rally
Many things could add fuel to Rivian's rally, but here are a few worth noting.
Topping its forecast pace of 50,000 vehicles produced in 2023 will excite investors. Management maintains that the company is on track to meet its manufacturing guidance. A slow first-quarter start means that through the first half, it produced just 23,387 vehicles. To surpass 50,000 vehicles in 2023, Rivian will need to turn out at least 14,113 vehicles each quarter.
Management's 50,000 guidance was disappointing to some investors because it fell short of Wall Street analysts' estimates for 60,000 to 65,000 units. But Rivian management has reportedly told employees internally that the company could still produce 62,000 vehicles in 2023. A result like that could give a huge boost to its stock price rally.
Another way for Rivian to fuel its rally would be to expand its lead on Ford Motor Company's F-150 Lightning electric pickup. Detroit automakers are known for their hugely popular and hugely profitable trucks, and although the F-150 Lightning is still fairly new to the market, it's easy to believe that Detroit's pickup truck dominance will eventually expand to include electric models. That said, during the first half of 2023, nearly 16,500 Rivian R1Ts were sold, while Ford sold only 8,757 F-150 Lightnings.
With the ramp-up in production, Rivian continues to report heavy losses and added cash burn in the medium term. But other financial metrics in its second- and third-quarter reports could provide positive surprises (Rivian will report Q2 results on Aug. 8).
One metric investors are keyed in on is gross profit. That metric was actually a loss of $535 million during the first quarter of 2023, worse than the prior-year period's $502 million loss. However, management said it expects the EV maker to be gross profit positive in 2024. If the company accelerates toward that target at a faster rate than expected -- perhaps thanks to its recent move to use Enduro motors in the R1T -- it would certainly help drive the stock's rally.
The bottom line on Rivian
Ultimately, a lot of what Rivian needs to do from here to drive a rally that could catch up to Tesla's 2023 performance is exactly what it has been doing: accelerate production and deliveries faster than expected. If the gap between deliveries and production closes as it did during the second quarter, hinting toward strong demand, even better.
But the other catalysts discussed above could certainly boost the rally even further. Will they happen? Time will tell. Will they exceed Tesla's stock rally? Savvy investors should stay tuned.
