Rivian earnings provide a ‘small victory if you’re long’: Analyst

CFRA Vice President and Equity Analyst Garrett Nelson joins Yahoo Finance Live to talk about Rivian's Q1 earnings report, the EV manufacturer's production forecasts for 2022, its revenue miss, and Ford selling a portion of its shares.

Video Transcript

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- Welcome back. EV truck and cargo van maker Rivian in desperate need of a charge, following news over the weekend that Ford sold eight million shares after its stock lockup expired, shedding 20% off the share price for Rivian. But the stock is getting a boost on earnings. News, joining me now is Garrett Nelson, CFRA vice president and equity analyst, good to see you, Garrett. What do you make of the earnings? Tell us about it.

GARRETT NELSON: Sure, thanks for having me. The bottom line was a little bit better than expected here. Came in at adjusted EPS loss of $1.43. The consensus was a loss of $1.66, and it looks like the beat was due to lower than expected cost, because revenue came in a little light. The revenue was only 95 million for the quarter, the consensus was about $129 million. They are maintaining their vehicle production guidance for the full year of 25,000 vehicles. So we think that's a positive that they're not lowering the guidance, due to a lot of the supply chain issues and chip shortages, which continue to plague the auto industry. But overall, it's a decent release. The stock is getting a little bit of a bounce, but I think you have to put it in context. The stock is down about 80% year to date. And so it's a small victory, I think, if you're long.

- Yeah, when you're down 80% year to date, it's a very low bar. They have leapt over it, and up about 8% in after hours. The original projection was for more than double that amount of vehicles, though, right? This is down from the original 50?

GARRETT NELSON: Yeah, it's well below where I think a lot of analysts' estimates were heading into this year. So it's certainly a very difficult environment for automotive companies, still. Especially if you're a startup, like Rivian is.

- They have talked a lot about supply chain issues. How much have they plagued the company, and why more so than Tesla?

GARRETT NELSON: Yeah, I mean, when you're a new company like Rivian, you just don't have the experience. And a lot of the long standing relationships that a company like Tesla has formed over the years, you know Tesla, essentially, in their 16th year, 17th year of operation, Rivian just produced its first vehicle last fall. And so they're especially exposed to these supply chain issues, and I think that's a big reason why the stock is down so much. It's a market that's really been very unforgiving to unprofitable high growth names, such as Rivian.

- We mentioned the Ford sell-off of the eight million shares, now they're still one of the major share holders in Rivian. Do you expect further sales? Amazon's the one that everyone is eyeing, really dragged down their quarter.

GARRETT NELSON: We do. So Ford, even after selling the eight million shares, they still have about 94 million shares that they own, which gives them about a 10 and 1/2% ownership stake in Rivian. You mentioned Amazon, we think that's really one to watch here because, Rivian, as it stood at the end of the quarter, had about $15 billion of net cash. And the stock has sold off so much that its market cap is now approaching its net cash on the balance sheet.

And so we think that a company like Amazon, Amazon owns almost 18% of the company, it might make sense, in terms of an acquisition. Or for a traditional automaker, looking to make a bolt on acquisition to really gain some EV exposure. So the stock is sort of interesting at these levels after this huge sell off.

- When you look at the space early in the program, we talked a lot about the Ford F-150 Lightning. Pras Subramanian actually test drove this thing. They have sold out, stopped orders for 22. How does that impact them in this space that Ford is not only producing this pickup, but they are selling out of it?

GARRETT NELSON: Yeah, so Rivian brought the first electric pickup truck to market when they made first deliveries of the R1T last fall. Now, the Ford has started production of the f-150 Lightning. They have reservations for over 200,000 units for that vehicle, so we think that's why Ford, which had a partnership with Rivian, that they backed out of about six months ago. And we think that's why they're selling some of their ownership in the company, is because now, they really view them as a direct competitor in the threat in the electric pickup space.

- Yeah, and Ford came out and virtually lapped them. R.J. Scaringe, the CEO there, is once the next Elon Musk. He talked a lot about the battery capacity, how there's only 10% of what is needed out there. What do you expect to hear from him in the call, and how does he reassure investors?

GARRETT NELSON: Yeah, in our view, there's only one Elon Musk, and Tesla really has established a first mover advantage in battery technology in electric vehicles. It's why they're the dominant player in the space. And so we don't hold R.J. Scaringe to the same-- hold him in the same esteem as someone like Elon Musk. But it's just really years of experience that why Tesla is our top pick in this space, why we have a strong buy on the stock. We think Rivian, and essentially all other vehicle manufacturers, are well behind Tesla in terms of battery technology and overall electric vehicle quality. And so I think we remain very positive on Tesla for that reason.

- So bottom line, are you buying Rivian at this point?

GARRETT NELSON: We have a hold on the stock right now.

- If you're out there, if you're a retail investor.

GARRETT NELSON: I think it gets interesting at these levels with the sell-off. Because as I mentioned, the net cash on the balance sheet is at a level that's approaching the market cap of the stock. And so I think at that point, there is some value. You'd see how in Amazon, or maybe another automaker could see value here in Rivian, so we do think it's a little more interesting here in the low 20s.

- Amazon currently owns 17.7% of the shares in Rivian. Thank you for joining us, Garrett Nelson, CFRA vice president and equity analyst.