After a brief spike, shares are back in value territory.
Rivian Automotive (RIVN -6.84%) was once one of the hottest stocks in the world. In 2021, the shares peaked with a total valuation of $150 billion — roughly 10% of Tesla‘s market capitalization. The stock was valued at nearly $130 per share. Today, that share price is below $13, with a total market valuation of just $12 billion — or only a fraction of its earlier size.
So is now the time to buy? If you’re looking for maximum growth potential, this could be an incredible opportunity.
Don’t buy Rivian stock for this reason
Right now, I think it’s an incredible time for many investors to be buying Rivian stock. But there’s one person who should be staying far away from this auto manufacturer: the investor unwilling to stomach a lot of volatility over the short term.
Rivian was founded in the summer of 2009, but it didn’t reveal its first two vehicles — the R1S SUV and the R1T pickup truck — until 2018. And then it took another three years to actually deliver on its first orders. That means it took more than a decade for the company to go from idea to an actual product.
These long delays are normal for auto manufacturers. It takes many years to not only design a vehicle but build out the production infrastructure, acquire the right certifications and testing data, and then market and deliver the vehicles themselves, not to mention providing support for brand-new models with limited real-world adoption.
After Rivian began ramping up its sales base in 2021, however, things started to move fast. Within weeks, the company IPO‘d and in 2022 and 2023, sales zoomed from essentially $0 to nearly $5 billion. In sum, things moved slowly for Rivian for a long time. But when it hit the inflection point, everything changed in a hurry.
RIVN Revenue (TTM) data by YCharts
Today, we’re in another slow period for Rivian. Earlier this year, it announced plans for three new vehicles: the R2, R3, and R3X. Importantly, all three models are expected to have a starting price of under $50,000. That should give Rivian access to a significantly larger customer base, as Tesla proved with the introduction of its mass-market models, the Model 3 and Model Y.
But as with earlier model introductions, actually getting the R2, R3, and R3X to market will take several years. The first shipments are expected until 2026. And because these models will be built on a new platform using new production infrastructure, it’s very possible that production will be delayed at some point. That’s what happened when Rivian delivered its first R1T models nearly half a year later than expected.
The point is that anything can happen to Rivian’s share price over the next year or two. With very few catalysts until its mass-market models hit the road, investors should expect a lot of volatility.
One reason this stock has huge upside
If you’re willing to remain patient, however, it’s not hard to see how Rivian’s share price could be significantly undervalued. Tesla began deliveries of its Model 3 in July of 2017. At the time, sales were around $10 billion. By 2020, sales were approaching the $30 billion mark. Around that time, the company introduced another mass-market vehicle: the Model Y. Two years later, sales were approaching $60 billion — 10 times what the company was generating in 2017.
If Tesla is any indication, Rivian’s current sales base of just $5 billion leaves plenty of room for growth. If the R2, R3, and R3X have similar success, we could see Rivian’s sales explode by more than 1,000% over the next five to seven years. With high customer satisfaction and loyalty, Rivian has a great chance of achieving this feat — if it can get its models to market on time and on budget.
There’s a lot of uncertainty here, especially regarding financing. It’s not cheap to build out production infrastructure, and Rivian needs a lot of new capital to survive the next few years. But if you’re willing to bet on a story that will take years to play out, there are few stocks with as much predictable sales growth potential as this. Just be prepared for volatility along the way, dollar-cost averaging when the share price is weak.