Hedge Funds See Potential in Rivian Automotive, Inc. (RIVN) Following Strategic Alliance with Volkswagen
We recently published a list of 13 Most Promising EV Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Rivian Automotive, Inc. (NASDAQ:RIVN) stands against the other most promising EV stocks to buy according to hedge funds along with the industry outlook.
According to a September 13 report by S&P Global, the auto industry’s shift to electric vehicles (EVs) is accelerating, with 2026 seen as a pivotal year for adoption. By 2030, over 25% of new passenger cars sold are expected to be electric, as the transition away from internal combustion engines (ICE) gains momentum.
Major automakers are projected to produce over 70% of global EVs by 2030, up from just 10% in 2022. However, a few challenges remain, like range anxiety, especially for those without convenient charging options. Addressing these issues will require collaboration among automotive, utilities, government, and property owners, which could create a way for significant growth in vehicle electrification and potentially end the ICE era.
We discussed the market dynamics of the EV industry in our article, 11 Small Cap EV Stocks to Invest In. Here is an excerpt from the article:
“While the growth in the US and Europe is slowing down, China is picking up a significant pace and dominating the EV landscape. According to a World Economic Forum report, Chinese EVs are much cheaper than their Western counterparts, with an average price of $34,400, compared to $55,242 in the U.S. The price gap is driven by lower labor costs, favorable government subsidies, and more affordable battery sourcing.
Chinese automakers now produce more than half of the world’s EVs and are using their cost advantages to potentially dominate the global market. As Chinese brands gain scale and expertise, their competitive pricing could allow them to challenge Western automakers.”
The Electric Vehicle Shift and Its Economic Impact on Europe
While Europe saw significant adoption of EVs in the earlier years, it has seen a slowdown. According to an October 3 report by McKinsey, the growth of EVs in Europe poses both opportunities and challenges for the automotive industry, which currently contributes $1.9 trillion to the economy.
While electric mobility could add up to $300 billion in gross value added (GVA) by 2035, the industry could risk losing $400 billion if European OEMs’ global market share declines from 60% to 45%.
Key strategies for success include expanding the domestic battery supply chain, improving manufacturing capabilities, streamlining regulations, and investing in R&D and talent development. By proactively addressing these challenges, European OEMs can capitalize on the EV shift, generate new value, and secure the region’s economic future in the automotive sector.
Shifting Gears to the Inevitable Future of Electric Vehicles
In a CNBC interview, Young Liu, Chairman of Hon Hai Technology Group said that the future of the automotive industry will be dominated by electric vehicles, with hybrids playing a limited role due to advancements in battery technology. He made a note of current challenges such as charging times and range anxiety, but expects improvements in battery systems will eliminate the need for hybrids.
Liu outlined a path to profitability for EV companies based on three key strategies: “platformization, modularization, and standardization”. He believes these will help streamline operations and reduce the need for individual investments in proprietary platforms, which is a challenge for traditional manufacturers due to their existing structures.
Our Methodology
For this article, we used stock screeners and ETFs to identify over 40 companies with significant operations related to the EV industry. Next, we narrowed our list to 13 stocks most widely held by institutional investors. The most promising EV stocks are listed in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s Q2 database of 912 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A state-of-the-art electric vehicle charging at a station at a suburban mall.
Rivian Automotive, Inc. (NASDAQ:RIVN)
Number of Hedge Fund Holders: 37
One of the most promising EV stocks, Rivian Automotive, Inc. (NASDAQ:RIVN) is an American electric vehicle manufacturer and technology company that is most known for its electric SUVs and pickup trucks. It also produces the electric delivery van (EDV) for Amazon.
In June, the company announced a joint venture with Volkswagen Group, with plans to develop next-generation electric architecture and advanced software technology. The partnership aims to improve software development for both companies by combining their strengths. Rivian (NASDAQ:RIVN) will share its electrical design and technology to help lower costs and speed up innovation.
Through this joint venture, Volkswagen will be able to use the company’s existing technology, making it easier to transition to a new design system. Both companies expect to launch vehicles featuring this new technology by the end of the decade, while still running their own businesses separately.
Volkswagen plans to invest $5 billion in Rivian (NASDAQ:RIVN), starting with a $1 billion convertible loan that can turn into stock under certain conditions. The remaining $4 billion will come in later stages.
While the company was struggling with significant losses, this deal is a breath of fresh air at the right time. CNBC reported that Alex Potter, senior analyst at Piper Sandler believes that the partnership is not only crucial for the EV producer, but the entire automotive industry.
Rivian (NASDAQ:RIVN) announced its production and delivery figures for the third quarter on October 4. It reported production of 13,157 vehicles and 10,018 deliveries. The company is facing production challenges due to a shortage of a shared component affecting its R1 and RCV platforms, which began in Q3 and has intensified.
As a result, the company has lowered its annual production forecast to between 47,000 and 49,000 vehicles. However, it has maintained its annual delivery outlook, expecting low single-digit growth compared to 2023, aiming for between 50,500 and 52,000 deliveries.
After the report, Canaccord slightly reduced its price target on the company stock from $30 to $28 but maintained a Buy rating on Rivian (NASDAQ:RIVN). The firm highlighted that supply chain issues with components affected production in the third quarter of 2024. However, the company’s deliveries are still expected to stay on schedule, as management plans to utilize its inventory to satisfy demand. Despite this positive outlook, Canaccord has also adjusted its forecasts for gross margins and deliveries for 2025 downward.
Meridian Hedged Equity Fund stated the following regarding Rivian Automotive, Inc. (NASDAQ:RIVN) in its Q2 2024 investor letter:
“Rivian Automotive, Inc. (NASDAQ:RIVN) is a US-based electric vehicle manufacturer focused on the design, development, and production of electric adventure vehicles, pickup trucks, and commercial delivery vans. We own Rivian because we believe the company is a future leader in the growing electric vehicle market with a strong brand, compelling products, and a vertically integrated business model. During the quarter, Rivian’s stock price was driven by its progress on cost reduction initiatives and management’s stated confidence in achieving positive gross margins by the end of 2024. The recent announcement of a joint venture with Volkswagen, involving up to $5 billion in investment, also significantly boosted Rivian’s financing outlook and validated its technology. We trimmed our position in Rivian given the strong performance in the quarter.”
Overall RIVN ranks 6th on our list of most promising EV stocks to buy according to hedge funds. While we acknowledge the potential of RIVN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RIVN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.