The see-sawing shares of Rivian Automotive (NASDAQ:RIVN) — an upstart electric-vehicle (EV) manufacturer — have essentially come full circle. In late February of this year, Rivian stock was trading hands at just over $10. An initial dead-cat bounce failed, leading to single-digit pricing. But soon enough, the speculative bulls latched onto the relatively discounted deal and raised the valuation.
However, after hitting a technical wall around the $12 level, Rivian stock started to retreat. In the business week ending June 21, RIVN slipped more than 5%. That has the price trading a couple cents above the all-critical $10 level. Mathematically, of course, $10 represents the delineation between single digit and double digits.
From the perspective of the technical analyst, it would be vital for Rivian stock to hold this line. Still, it must be said that I’m not 100% encouraged it will. Fundamentally, the underlying enterprise lacks competitive distinction other than providing an alternative to Tesla (NASDAQ:TSLA). Because of the myriad challenges ahead, I hold a bearish view of RIVN for now.
Rivian Stock Seems Compelling on Paper
To be fair, what attracts investors to Rivian stock is that the underlying business appears very enticing. From a subjective point of view, the company’s EVs are gorgeous. You have modern accoutrements integrated with classic lines. Ultimately, I believe most consumers prefer this mixture of the bold and familiar rather than an assault to their senses with something truly avantgarde (like the Tesla Cybertruck).
However, being different might not cut muster with a tough consumer environment. Not to beat up on the Cybertruck but if being different represented the be-all, end-all, then Elon Musk’s automotive Frankenstein monster would be the toast of town. It’s a novelty but that’s probably where it goes and ends.
The issue with Rivian stock is that the underlying business needs to wedge its way into the broader EV discussion. Now, analysts do believe this will ultimately be the case.
Last year, Rivian posted sales of $4.43 billion. As a consensus view, analysts believe that revenue will hit $23.79 billion by 2028. That comes out to a compound annual growth rate (CAGR) of just under 40%. That’s very impressive when you consider the context.
According to Statista, the U.S. EV sector may hit $82.8 billion by year’s end. By 2028, market volume may reach $161.6 billion. If so, that would imply a CAGR of 18.2%. In the global arena, Precedence Research believes that total sales may rise from $255.54 billion in 2023 to nearly $2.11 trillion by 2033. That comes out to a CAGR of 23.42%.
Against both fronts, analysts project Rivian to win. So, why the hesitation against RIVN stock?
Forecast Doesn’t Seem Realistic
In an industry as hypercompetitive as EVs, it’s difficult to believe in a positive-sum game. Rather, a small group of sector leaders will likely contribute the lion’s share of the industry’s growth. Everyone else will fight for the scraps and ultimately fade away. So, the bullish argument for RIVN stock is that Rivian has what it takes to be one of the elites.
That’s a difficult proposition to swallow. In the international front, Chinese EV manufacturers have a cost advantage that western companies just can’t match. Now, Rivian is better suited in the domestic sphere as a Tesla alternative. However, Tesla hasn’t made the competition any easier. After all, it sparked a price war to impede rivals in the ecosystem.
Further, I’m not sure how Rivian can compete domestically without incurring significant financial penalties. As InvestorPlace’s Rich Duprey mentioned, the company presently loses $38,000 on each vehicle it makes. If anything, Rivian’s EVs need to be priced higher than they are, not lower.
That said, management is banking on its lower-priced R2 model to help shore up sales. Ironically, though, targeting the middle-income crowd could be to the detriment of Rivian stock.
One of the factors that prevents robust sector growth is the charging dilemma: not enough of it and present solutions are too slow. This headwind is going to be more pronounced when you start pivoting from the upper-income crowd to the more modest strata.
That’s because you’ve got to imagine as you go down the income stream, you’re less likely to deal with homeowners and more apartment dwellers. These folks will likely need adequate public charging solutions the most, something that’s just not available right now.
The Takeaway: It’s Time to be Realistic with RIVN Stock
From an automotive design perspective, we can appreciate what Rivian is bringing to the table. However, as an investment, RIVN stock faces significant challenges. Internationally, it would face stiff competition from the Chinese. Domestically, Tesla and others will make life difficult. Ultimately, a lack of truly distinctive attributes makes RIVN’s bullish sales projections vulnerable to skepticism.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
