As Rivian Pulls Back Towards IPO Price, What Should Traders Do With The Stock?

EV company Rivian Automotive Inc made its Wall Street debut in early November with a high-profile initial public offering of shares priced at $78. Immediately after its listing, the stock was on a tear and hit a high of $179.47, giving rise to fears of irrational exuberance taking hold.

The rally petered out soon after and selling Rivian shares has intensified in recent sessions, dragging them toward its IPO price.

The Rivian Analyst:Morgan Stanley analyst Adam Jonas maintained an Outperform rating and $147 price target on Rivian shares.

The Rivian Thesis:Rivian investors should keep near-term expectations managed, as ramping EV manufacturing follows an extremely difficult path, analyst Jonas said in a note.

Rivian's recent stock weakness has to do with the broader tech sell-off, pushed out R1 delivery schedules of some variants, and the partnership announced between Amazon.com, Inc. and Stellantis NV, the analyst said.

Amazon, the analyst noted, has exclusivity on buying EV delivery vans from Rivian through 2025, but the arrangement between the companies do not preclude Amazon from purchasing final mile vans from other OEMs,

In 2022, the analyst expects Rivian accounting for merely 25% of Amazon's final mile van purchases. This is expected to be increased to more than 70% by 2030, he added.

Given that Rivian has never produced and serviced light vehicles at scale, investors should expect problems at the company in the normal course of ramping a new product, Jonas said. Additionally, there are industry-wide supply chain issues that go well beyond microchips, he added.

There is an extraordinary scope for things that can and will go wrong while scaling up EV manufacturing, driving volatility, the analyst said. Secondly, there could be quality issues, battery fires, software glitches, delays, bad press and videos and other variables, he added.

The reward, the analyst said, can potentially be far greater than one can imagine.

"Looking through the noise, we are excited about the product, the management, the capability, capitalization and strategic support for Rivian and would use days like today as a buying opportunity," Jonas said.

While 2022 will see ups and downs while in "ramp mode," the analyst said he thinks Rivian is "The One" to be included in any diversified EV portfolio.

RIVN Price Action:At last check Thursday afternoon, Rivian shares were down 2.98% at $87.33.