Rivian (NASDAQ: RIVN) stock had a volatile 2024. And despite some promising catalysts ahead, shares remain priced at a discount versus other electric vehicle (EV) stocks. There's been some mixed news for EV manufacturers in recent weeks, especially when it comes to projected government subsidies in major markets like the U.S. But when it comes to Rivian's prospects, CEO RJ Scaringe just delivered some great news to investors.
One of the biggest issues plaguing EV stocks right now is a lack of clarity regarding government subsidies. The freshly inaugurated Trump administration has signaled that it would end many subsidies, creating a potential headwind for demand. Most EV manufacturers are still trying to bring their costs down to mass-market levels in order to transition from being seen as a luxury purchase. Adding $7,500 to the purchase price of an EV through the repeal of these subsidies could have a chilling effect on demand growth for years to come.
How concerned is Rivian's CEO? To my surprise, Scaringe doesn't seem too perturbed. "I don't think we're particularly worried about any of it because whatever happens will be equally applied to all," Scaringe said last week, according to a report from Automotive News. "I started the company with the view of making highly compelling products and none of my decision to start Rivian had anything to do with what the policy was going to look like."
To be sure, Scaringe doesn't seem to think a lapse in subsidies would be a good thing. But long term, he doesn't see it moving the needle much. The electrification of the U.S. transportation industry isn't a matter of if, Scaringe argues, but a matter of when.
Investors should understand that optimistic comments from a company CEO should be taken with some level of skepticism. And while I do agree with many of Scaringe's points, there are two things to keep in mind.
First, Rivian's sales will almost certainly be negatively affected if subsidies are repealed. There's a reason why the company is dedicating huge amounts of resources to getting its three new affordable vehicles to market by 2026. The mass market -- otherwise known as the affordable category of EVs -- is how Tesla truly became a multitrillion-dollar business. Scaling mass-market vehicles can bring in significantly more sales volume than luxury vehicles. While the effect of repealed subsidies may not impact luxury buyers as much, Rivian's sales growth has already plateaued without new mass-market model introductions. The removal of subsidies would only compound these pressures.
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The second thing to keep in mind is that, long term, Scaringe is right. The electrification of the U.S. transportation sector is a matter of when, not if. From a cost and emissions standpoint, most experts agree that it is inevitable. But for a company like Rivian that has limited capital runway, timelines matter a lot. I'm optimistic that the company can survive until launching its mass-market vehicles in the next couple of years, but a repeal of subsidies would hamper near-term growth. As Scaringe points out, however, these pressures will also apply to competitors, most of which have even less capital access than Rivian.
So while it's encouraging that Scaringe remains optimistic, the next few years may be more difficult than investors believed only a few months ago.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
CEO RJ Scaringe Just Delivered Reassuring News for Rivian Investors. But There's a Catch. was originally published by The Motley Fool
