Rivian stock is still a top EV play despite its big sell-off this week, Morgan Stanley says: 'You can't have the reward without the pain'

• Rivian investors should brace for near-term pain as the EV-maker may face a "gauntlet of fires," said Morgan Stanley.
• But the company is still a good long-term buy, despite the recent share slump wrote analyst Adam Jonas.
• Jonas said investors should use the dip in the stock price as a buying opportunity.

Electric truck maker Rivian is still a good long-term play despite a steep sell-off this week -- if investors can weather the pain that comes with scaling the business.

That's according to Morgan Stanley analyst Adam Jonas who advised investors to manage their expectations for the company in the near-term and take a lesson or two from top dog, Tesla.

The bank maintained its overweight rating this week despite a steep sell-off that dragged the shares briefly below their IPO price on Thursday. Jonas and his team reiterated a $147 target price. The stock was trading at $87.57 at 12:54 p.m. ET on Friday.

"Tesla has shown us the extremely difficult path to ramping EV manufacturing," Jonas wrote in a January 6 note. "You can't have the reward without the pain."

Rivian has sunk about 30% in the last month, with much of that sell-off happening Thursday after Amazon announced a new deal with Stellantis for electric delivery vans. The e-commerce giant had previously announced an order of 100,000 electric delivery vans from Rivian. Shares briefly dipped below their initial public offering price of $78 on the news.

Short sellers have been "taking a ride" on the stock amid its decline, according to Ihor Dusaniwsky of data analytics firm S3 Partners. In the last 30 days, he said, shares sold short have increased 43% to about 31 million shares worth $2.7 billion.

Jonas said for investors who think Amazon's Stellantis deal is going to be as bad as it gets for Rivian, "this is probably not the stock for you."

Tesla CEO Elon Musk has even weighed in on the company previously when he said achieving high production and breakeven cash flow would be "the true test" for the EV-maker. According to Jonas, Tesla has shown the wide array of problems that can occur as an EV-maker ramps its production.

But, Jonas said, "if you can run the gauntlet of fires, quality issues, battery fires, software glitches, delays, scathing articles and videos and other accoutrements... the reward can potentially be far greater than what you imagined."

Despite Rivian's slump, Jonas said he's excited about the company and would advise using the dip as a buying opportunity.

"While 2022 will see ups and downs while in 'ramp mode,' we think Rivian is 'The One' to be included any a diversified EV portfolio," he said.