Does Rivian’s Original Publication Offer a Public Purchase Opportunity?

Rivian Automotive (NASDAQ:RIVN) investors are witnessing an abrupt end to an impressive rally that began with the electronics maker’s popular IPO last week.

Shares have fallen more than 20% in the past two days after a five-day jump that sent the stock up 121% from its initial IPO price of $78. The post-IPO buying frenzy made Rivian worth more than nearly 90% of the S&P 500 companies, which include Boeing (NYSE:BA), Starbucks Corp. (NASDAQ:SBUX) and Caterpillar (NYSE:CAT).

Such volatility in electric car stocks is not a new trend. Market leader Tesla (NASDAQ:TSLA) has experienced many booms and busts over the past five years. Tesla shares have been under intense pressure since Elon Musk conducted a Twitter poll this month asking users whether he should sell 10% of his shares in the company, and subsequently conduct a stock sale.

The main uncertainty for electric car companies is the high inventory levels that are difficult to provide any reasonable justification. Rivian, which is backed by some established investors such as Ford (NYSE:F), Amazon (NASDAQ:AMZN) and asset manager T. Rowe Price Group, needs to prove as soon as possible that it can meet investors’ expectations.

Rivian plans to use $12 billion in funding from the initial public offering to expand factory production and accelerate development of future vehicle models. “We have created a very high-risk platform,” Rivian said in an interview with Bloomberg Television for the second conference call, Reuters reported in July. “This platform has allowed us to build the commercial side of our business very quickly and our first customer was Amazon with their orders for delivery trucks.”

Demand for electric vehicles is likely to remain strong, helped by government subsidies to promote clean energy. US President Joseph Biden plans to spend billions of dollars to build a national network of EV charging stations as part of his latest infrastructure spending plan.

Additionally, Irvine-based Rivian says the electric vehicle market will reach at least $1 trillion by 2025 and grow rapidly within a decade.

Thanks to its huge advantage in the battery-powered car market, Rivian has the potential to become a successful player in the electric car market. But investors should also be aware that it will take a long time for the company to close the gap between expectations and fundamentals.

Historically, ramping up production is the riskiest part of a company’s life cycle, and Rivian has many years to get to this point. In comparison, it took Tesla 10 years to scale up and record its first profitable year.

Conclusion

Investors will have the best entry to buy Rivian stock and participate in this potential growth story. Currently, there is a high risk of loss after the excitement of the initial public offering. In our opinion, waiting on the sidelines is the best strategy for long-term investors right now.

Author:
Investing.com