We recently published a list of 10 Best Automotive Stocks To Buy Now. In this article, we are going to take a look at where Rivian Automotive Inc. (NASDAQ:RIVN) stands against the other automotive stocks.
Headwinds in the Automotive Industry
The automotive industry is heavily commoditized relative to other industries considering the fact that consumers typically have numerous options in terms of the car they want to purchase, resulting in the need for automotive companies to compete with each other predominantly on pricing. As a result, many automotive companies, especially those offering pricier vehicles, have been seeing a decline in revenue growth and profit margins over the past couple of years. This decline is primarily a consequence of rising inflation which has significantly cut down your average consumer’s spending power.
According to Daryl Kenningham in his interview on CNBC’s “Squawk Box,” the President and CEO of Group 1 Automotive, the wider macroeconomic trends surrounding the automotive industry and the support of Original Equipment Manufacturers (OEMs) in the market have resulted in prices for vehicles, both used and new, beginning to fall in 2024 – though this price decline is being seen more evidently in the case of new cars, seeing as there has been a prolonged shortage of pre-owned cars in the market. Despite the decline, though, the average transaction costs for purchasing any car are still pretty high, which has been acting as an impediment barring consumers from getting into cars.
Rising Industry Trends
Considering the current market conditions, many consumers are thus looking for lower-priced vehicles. This spells trouble for electric vehicle (EV) producers since EVs are notorious for their hefty price tags and pricey battery replacements, and lays the foundation for the newest hot trend in the automotive space: hybrid cars. Ford’s former CEO, Mark Fields, in his interview on CNBC’s “Squawk Box” on August 30, noted that because of the greater convenience offered by hybrid cars, automakers dabbling within the EV space should expand their hybrid offerings. Simultaneously, the vision of producing pure EVs shouldn’t be entirely abandoned either – instead, time and resources must be dedicated to producing lower-priced EVs that automakers can actually make money on.
Fields further added that another impediment to the growth of EV makers today is the prolonged waiting time for charging an EV. For this, the only viable solution on the horizon is the development of solid-state batteries that can significantly reduce charge time to about 5-10 minutes – around the same time you spend at a typical gas station. However, the mass production of solid-state batteries and their incorporation in EVs is still something that we won’t see happening in the near future. This is why we believe that investors interested in automotive stocks should look at not only EV manufacturers but also traditional vehicle producers or, even better, companies that offer both types of vehicles to their consumers. The list we have compiled below reflects this position.
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A state-of-the-art electric vehicle charging at a station at a suburban mall.
Rivian Automotive Inc. (NASDAQ:RIVN)
Number of Hedge Fund Holders: 37
Rivian Automotive Inc. (NASDAQ:RIVN) is a manufacturer of electric vehicles and accessories that is based in Irvine, California. It offers consumer vehicles such as pickup trucks and sport utility vehicles, among more.
While Rivian Automotive Inc. (NASDAQ:RIVN) is considered a risky investment because of its novel and unique EV tech, those investors who don’t mind a little bit of risk in their portfolios could really stand to profit immensely by owning this stock. Rivian Automotive Inc. (NASDAQ:RIVN) has been entering lucrative partnerships with major companies such as Amazon and Volkswagen. It also has about $7.7 billion in cash and short-term investments as of this August, which means that the company is well-positioned to continue developing its EV technology for profit in the foreseeable future.
The partnership with Volkswagen has also been attracting more investors since it offers a great platform for Rivian Automotive Inc. (NASDAQ:RIVN) to showcase its zonal hardware design and integrated technology platform. Under the partnership, this platform will act as the foundation for developing new software-defined vehicles for both Rivian Automotive Inc. (NASDAQ:RIVN) and Volkswagen. Overall, investors’ opinions on this stock seem largely positive in light of these factors.
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We saw 37 hedge funds long Rivian Automotive Inc. (NASDAQ:RIVN) in the second quarter, with a total stake value of $383.6 million. Soros Fund Management was the largest shareholder, holding 198,436,000 shares.
Baron Funds mentioned Rivian Automotive Inc. (NASDAQ:RIVN) in its first-quarter 2024 investor letter:
“Shares of Rivian Automotive, Inc. (NASDAQ:RIVN), a U.S.-based EV manufacturer, declined 53.3% in the first quarter. Despite substantial improvements in production and delivery volumes in 2023, as well as an improvement in unit economics, Rivian’s business remains constrained by its limited scale, which creates pressure on gross margins, and contributes to the company’s elevated cash burn. Additionally, Rivian expects to temporarily shut down its production facilities for upgrades, impeding anticipated production growth in 2024. Compounding these challenges is the potential for demand headwinds due to the continued complex macro environment, and the relatively small automotive segments that Rivian’s initial products target. Nevertheless, the recent unveiling of Rivian’s mass-market products, the R2 and R3, garnered enthusiastic responses, evidenced by over 68,000 pre-orders within the first 20 hours post-launch. In a strategic move, management opted to produce the R2 in Rivian’s existing facility, deferring the construction of a new factory. This decision should help reduce mid-term capital expenditure obligations while ensuring higher utilization of current facilities as the R2 ramps production in 2025. We remain shareholders.”
Overall RIVN ranks 9th on our list of the best automotive stocks to buy. While we acknowledge the potential of RIVN as an investment, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RIVN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
