Should I buy Rivian stock for 2022?

When electric vehicle (EV) producer Rivian (NASDAQ: RIVN) went to market with an Initial Public Offering (IPO) in November, there was a lot of excitement around the stock. This pushed its share price higher.

Recently however, excitement surrounding the stock has cooled a little. As a result, the share price has come back down. So is this a buying opportunity for me? Let’s take a look.

What I like about Rivian

There are definitely things to like about Rivian from an investment point of view. For starters, it appears to have an excellent product in the R1T pick-up truck. This truck just won the prestigious MotorTrend Truck of the Year award, so it’s clearly a great vehicle. I think it’s likely demand for the R1T – which MotorTrend described as the “the most remarkable pickup truck we’ve ever driven” – will be very strong in the years ahead.

Secondly, Rivian has a load of orders from Amazon for its delivery vans. At present, Amazon – which is also a major investor in Rivian – plans to buy 100,000 vans between now and 2024. So this should help growth.

Third, analyst sentiment here is quite positive, relative to some of the other EV stocks. Morgan Stanley analyst Adam Jonas, for example, sees Rivian as “the one” to challenge Tesla. Jonas has described Rivian’s R1T and R1S models as the most “capable/desirable product” in the EV market.

It’s worth noting that Jonas – who currently has a $147 price target on Rivian – is not bullish on every EV stock. He still has a $12 price target on Lucid.

My concerns about Rivian

I do have a few concerns here however. One is in relation to supply chain issues. Recently, Rivian announced it expects 2021 production to fall a “few hundred vehicles short” of its target of 1,200 EVs, due to supply chain constraints. I expect these issues (ie semiconductor shortages) to persist in 2022.

Another concern is the level of competition Rivian is likely to face in the years ahead. In the pick-up truck and SUV space, it’s likely to face fierce rivalry from Ford, GM, Tesla, Mercedes, Volvo, Volkswagen, Fisker and many more companies. One issue to consider here is access to batteries. Until Rivian builds its own battery plants, it may struggle to get hold of the number it needs.

A third issue is the company is most likely going to need to raise capital in the next few years to fund its growth. This could potentially hit its share price.

Finally, there’s the valuation. There’s no P/E ratio here as Rivian is not yet profitable. However, the price-to-sales ratio at the current share price is about 27. That strikes me as very high, given the lack of economic moat here. If future growth is disappointing, I’d expect the stock to be very volatile.

Should I buy RIVN stock now?

Weighing everything up, I won’t be buying Rivian stock for now. To my mind, the risk/reward proposition here isn’t attractive at present. All things considered, I think there are much better growth stocks to buy.