Rivian (NASDAQ: RIVN) and Lucid (NASDAQ: LCID) emerged as prominent electric vehicle (EV) stocks in 2021, capturing significant attention in the market. Rivian, specializing in electric pickups, SUVs, and vans, experienced a soaring debut on the stock market at $78 in November 2021, with its value surpassing $172 a week later. Meanwhile, Lucid, focused on luxury sedans, entered the public arena through a special purpose acquisition company (SPAC) merger in July 2021, with its stock opening at $25.24 and later peaking at $55.52 in November.
However, the current landscape tells a different story, with Rivian’s stock trading at approximately $11, and Lucid at $3 per share. The initial enthusiasm waned as both companies struggled to meet ambitious production targets, and the impact of rising interest rates further compressed their valuations. Additionally, scrutiny of their financial health revealed challenges, prompting the question: should investors consider these former high-fliers as potential turnaround plays?
Rivian expects its production to flatten out this year
Rivian specializes in the production of three distinct vehicle models: the R1T pickup, the R1S full-size SUV, and a customized electric delivery van (EDV) crafted for its primary investor, Amazon (NASDAQ: AMZN). The forthcoming addition to its lineup, the R2 midsize SUV, is slated for market entry in 2026.
At the time of its initial public offering, Rivian set an ambitious target of manufacturing 50,000 vehicles in 2022. However, it faced challenges with supply chain constraints and, consequently, produced 24,337 vehicles that year. The company revised its annual production goal to 50,000 vehicles, now aiming for 2023.
Surpassing expectations, Rivian exceeded the revised goal by manufacturing 57,232 vehicles. Nevertheless, it projects a more modest output of 57,000 vehicles for 2024. Factors contributing to this conservative estimate include higher interest rates, a slower electric vehicle (EV) market, and a planned shutdown of its primary facility in Normal, Illinois, for several weeks in the second quarter.
The temporary halt in operations is geared towards upgrading production rates by 30%, introducing new in-vehicle technologies for the R1 platform, and reducing raw material costs. Amid these changes, analysts predict a 10% increase in revenue, reaching $4.9 billion in 2024.
As Rivian faces a deceleration in sales growth, it aims to bolster margins by expanding the use of its in-house Enduro drive unit and implementing a 10% reduction in its workforce. Despite a marginal narrowing of its operating loss from $6.9 billion in 2022 to $5.7 billion in 2023, analysts anticipate an operating loss of $4.8 billion in 2024.
With $10.5 billion in liquidity at the close of 2023, Rivian possesses a substantial financial cushion. However, the company must navigate its production challenges effectively to avoid depleting its cash reserves in the coming years. While the stock is currently valued at two times this year’s sales, the ongoing commitment of Amazon to its Rivian shares remains noteworthy.
Lucid is struggling to scale up its business
Lucid currently offers various versions of its Air luxury sedan and plans to introduce its second vehicle, the Gravity SUV, in late 2024. However, the company faced significant challenges in meeting its production targets. Initially projecting the manufacture of 20,000 vehicles in 2022 and 49,000 vehicles in 2023, Lucid fell short, producing only 7,180 vehicles in 2022 and 8,428 in 2023. Similar to Rivian, Lucid grappled with supply chain constraints, elevated interest rates, and a sluggish electric vehicle (EV) market, prompting the necessity to slash prices. For 2024, Lucid anticipates a production volume of 9,000 vehicles.
Despite these setbacks, Lucid remains ambitious about its future prospects. CEO Peter Rawlinson set a lofty goal in May 2022, aiming to achieve an annual production exceeding 500,000 vehicles by 2025. This ambitious target relies on support from the Saudi Arabian government, which owns over 60% of Lucid’s shares through its Public Investment Fund (PIF).
However, the projected expansion of Lucid’s Arizona plant, boosting annual production capacity to 90,000 vehicles by 2024, and the establishment of a new Saudi Arabian plant with a 2024 capacity of 5,000 vehicles, may fall short of reaching the stated goal. Even under the best circumstances, Lucid’s maximum annual production capacity would be around 245,000 vehicles by 2025.
This discrepancy raises concerns, especially considering Lucid’s 2023 performance, where it generated $595 million in revenue with an operating loss of $3.1 billion. Analysts expect a modest improvement in 2024, projecting a 33% increase in revenue to $794 million while narrowing the operating loss to $2.6 billion.
With $4.6 billion in total liquidity, Lucid faces uncertainties in light of its production challenges and financial performance. Despite the stock trading at five times this year’s sales, it does not necessarily present itself as a compelling bargain.
The better buy: Rivian
In the near term, Rivian and Lucid are likely to face continued challenges as they navigate the complexities of scaling up production in a demanding market. However, when considering the long-term prospects, Rivian emerges as a more promising investment compared to Lucid.
Rivian demonstrates a more robust production capability, delivering a higher volume of vehicles while managing to reduce losses per unit. Importantly, Rivian avoids setting unrealistic growth targets that could lead to investor disappointment or excessive reliance on foreign investors. Furthermore, when evaluating stock valuations in relation to their respective growth trajectories, Rivian’s stock appears more attractively priced.
