There’s no denying that electric vehicle manufacturer Rivian Automotive (NASDAQ:RIVN) has been on the move recently. At the same time, the company is off to a very poor performance during the first half of this year. Unfortunately, circumstances could become even more challenging, warranting a cautious outlook for Rivian stock.
It’s not that the underlying enterprise is irrelevant. From a marketing standpoint, Rivian EVs may be some of the most gorgeous vehicles out there. Further, management is busy wheeling and dealing, attempting to please both consumers and shareholders. Unfortunately, the headwinds associated with the space may be too much for Rivian stock.
Yes, the ongoing price war presents a major dilemma, not just for RIVN but for the entire pure-play EV industry. However, what should really concern prospective investors is the rise of the hybrid vehicle. Combining battery and combustion-based propulsion, hybrids offer much of the efficiency of plug-in EVs with the infrastructural compatibility of traditional hydrocarbon-powered vehicles.
Looking at the available data, hybrids are what the consumer wants right now. With that being the case, I’m not optimistic about Rivian stock.
Good News May Not be Good Enough for Rivian Stock
No investment is perfectly good or bad and the same applies to Rivian stock. While I’m not enthused about its prospects, it has more to do with the harsh realities of the EV environment. Certainly, I can respect the efforts that management has forwarded.
Most recently, the EV manufacturer disclosed last week it received $827 million in an incentive package from the Illinois government to expand operations at its Normal facility. This is the same plant that manufactures electric-powered delivery vans for Amazon (NASDAQ:AMZN), which is Rivian’s largest investor.
Further, Rivian will also be producing a more modestly priced SUV called the R2. This was unveiled in March and takes aim at Tesla (NASDAQ:TSLA), specifically its Model Y. On the surface, these and other developments appear incredibly lucrative for Rivian stock.
However, news items such as the R2, which is projected for release in 2026 with a starting price of $45,000, represent previously digested information. The issue is that Rivian stock suffered a loss of more than 52% since the beginning of the year. If the market doesn’t believe in the underlying positive implications, it’s tough to wager on RIVN.
To be sure, the Amazon relationship is a huge one. Nevertheless, shareholders may need to wait for a while before Rivian is consistently profitable. That’s likely not what investors want to hear in the current economic environment.
Hybrids Impose a Longstanding Headwind
One risk factor in being directly bearish on Rivian stock is that the company will release its first-quarter earnings report on May 7. Given that other EV companies have released surprisingly robust delivery figures, anything can happen. To add to the narrative, RIVN could be the target of a short squeeze.
As the kids like to say, you don’t want to fool around because you’ll find out. Nevertheless, I think it’s fair to question the longer-term viability of Rivian stock. In particular, the EV maker may suffer longstanding competition from hybrids.
As CNN pointed out, Toyota (NYSE:TM) has been crushing its rivals, including EV giant Tesla, with its hybrids. Last year, the company sold 11.2 million vehicles. That was more than any other automaker. Not only that, a third of the tally were hybrids. With fewer than 1% of Toyota sales being allocated to plug-in EVs, the message is clear: consumers want hybrids.
It’s not a surprising development since about two-thirds of U.S. housing units have a garage or carport. That leaves quite a few folks who require public charging infrastructure if they make the switch to “pure” EVs. Hybrids don’t require that commitment.
Moreover, the batteries that go into hybrids after the 2015 model year have proven resilient and reliable. So, once drivers acquire such hybrids, they’re less likely to switch platforms because of reliability issues. As well, the current economic situation means that hybrid drivers will likely hold onto their vehicles for as long as possible.
RIVN May Be Too Niche of an Investment
In fairness to Rivian stock, the underlying directive to compete with the Tesla Model Y is noteworthy. The problem, though, is that Tesla commands enormous social cachet. People readily know who the CEO of Tesla is. I’d bet not too many folks can name Rivian’s head executive.
In other words, people want to buy Tesla because the company forged a highly desirable brand. For the ultra-rich consumers, they may prefer the premium label offerings of Lucid (NASDAQ:LCID). And for many, many middle-income drivers, they have overwhelmingly opened their wallets for Toyota hybrids.
That leaves Rivian competing for a niche consumer group; basically, drivers who want a Tesla alternative but don’t want to pay Lucid prices and who also haven’t been attracted to the myriad offerings presented by legacy automakers. That’s a tough sell, which is why I’m sitting on the sidelines.
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.