The Rivian Automotive (NASDAQ:RIVN) share price had a stellar debut on the stock market since its IPO earlier this month. The US stock reached as high as $179.47, pushing its market capitalisation well beyond $150bn. That made it one of the largest automotive businesses in the world, just behind Tesla and Toyota.
Since then, the shares have fallen by just over 30% to around $130. Seeing this level of volatility on a high-flying growth stock isn’t too surprising. However, is it about to come crashing down? Let’s take a closer look.
Cracks begin to emerge
I’ve previously explored this business but, as a quick reminder, Rivian is an electric vehicle (EV) designer and (soon-to-be) manufacturer looking to make its mark in the automotive sector. The group has two flagship consumer SUVs that have a single-charge range of around 315 miles. And it’s also developing three different electric vans for logistical applications.
This is certainly not the only EV manufacturer competing in the space. But it has managed to grab the attention of two leading businesses, namely Ford and Amazon. Both of these firms invested considerable capital into the pioneering start-up a couple of years ago. And the latter has even ordered 100,000 vehicles to electrify its logistics fleet.
If these industry leaders see potential, then the Rivian share price must have a bright future, right? This mentality has undoubtedly contributed to the stock’s exceptionally high valuation. After all, despite what the price would suggest, the company doesn’t even generate revenue yet.
But this line of thinking may now be seriously flawed. Why? Because the partnership between Rivian and Ford has just been cancelled. And after a recent driving test, the vans ordered by Amazon have some serious range problems.
It was reported that if the heating or air-conditioning was turned on, battery power drained 40% faster than normal. That’s starting to cast doubts over the 120–150-mile range reported in the group’s prospectus.
With Ford cancelling its plans for joint vehicle development and Amazon already finding problems with the product, it looks like the Rivian share price could be due for a sharp correction in the near future. But will a crash in price create an opportunity for my portfolio?
Is a crashing Rivian share price a buying opportunity?
The last time I looked at the company, I concluded it had long-term potential by targeting the relatively niche SUV segment. And it seems Amazon and Ford agree because, despite the recent issues, both firms have retained their respective 20% and 12% stakes. What’s more, with its EVs scheduled to hit the market next year, its pre-revenue days could soon be over.
Overall, my investing thesis on the potential remains unchanged. But so does my belief that the Rivian share price is still bloated beyond sense, even after the recent 30% crash. Personally, I wouldn’t be surprised to see shares fall even further in the coming months.
Therefore, I’m not tempted to add this stock to my portfolio today. However, if a lower price tag were to emerge, I may have to change that decision.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
This post was originally published on Motley Fool
