Electric vehicle manufacturer Rivian Automotive, founded in 2009, became a publicly traded company on November 10 at $100 per share. The company is building electric SUVs and pickup trucks on “skateboard” platforms that can be used in future vehicles or leveraged by other companies.
Excitement for the EV space has led Rivian stock (RIVN) – Get RIVIAN AUTOMOTIVE, INC. Report to reach impressive market cap of $116 billion, at last check, despite the company not having reported a single dollar in revenues yet. Today, we discuss RIVN’s valuation and what could be expected of it next.
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On November 9, Rivian disclosed a target valuation of around $78 billion pre-IPO. At those levels, the automaker would be valued above traditional companies like Ferrari (RACE) – Get Ferrari NV Report, Honda (HMC) – Get Honda Motor Co., Ltd. Sponsored ADR Report and Hyundai (HYMTF) . Unlike these peers, Rivian is appreciated mostly for the growth potential of the EV market, not unlike Tesla (TSLA) – Get Tesla Inc Report and NIO (NIO) – Get NIO Inc. Sponsored ADR Class A Report.
To be clear, not all of Rivian’s sky-high valuation can be credited to buzz and euphoria over the EV opportunity. Some of the following factors that are better grounded on business fundamentals have likely played a role as well:
- Amazon is the largest customer and investor, at a 20% ownership stake. Rivian has secured a multi-year preorder of 100,000 delivery vans from the e-commerce giant.
- Rivian has outlined plans to produce 25,000 vans per year by 2025 and to build a preorder backlog of 55,400 R1 vehicles by the end of 2023.
- Production capacity is high at 150,000 units annually. Rivian also has plans to open a plant in Europe to start building vehicles by the end of 2023.
All factors above, coupled with the EV industry hype, are supportive of future growth projections. Growth stocks tend to trade on higher multiple of sales, and Rivian is perhaps one of the most extreme examples of it in the market today. See chart below.
Bigger than Tesla in the future?
Rivian has caught the attention of the market, especially for the high production capacity of 150,000 vehicles per year. This is a milestone that even Tesla was able to reach only a couple of years ago, after a long runway in Model S manufacturing.
The company’s R1T electric pickup starts at around $67,500. This is one of the cheapest vehicles of its kind in the market, trailing only Tesla’s Cybertruck that is still scheduled to be launched in late 2022 and said to have volume production only in 2023.
Rivian’s plans to ramp up R1T pickup production at a record pace has intrigued Tesla. Last year, Elon Musk’s company filed a lawsuit against former Tesla and current Rivian employees, alleging trading secret misappropriation.
Besides Tesla, Rivian may face strong competition elsewhere in the EV pickup market. According to Goldman Sachs, “several traditional automakers and EV new entrants have announced plans to launch EV pickups in the 2021 through 2024 timeframe.“
There is still an obvious gap between Rivian and Tesla today, from market footprint to brand awareness to product portfolio and beyond. But should Rivian’s bold growth plans be executed accordingly, a race for dominance in the EV space between both companies could unfold over time.
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Rivian’s IPO rode on the coattails of recent euphoria for EV stocks. Industry leaders like Tesla and Lucid Motors (LCID) – Get Lucid Motors Report have been drawing market attention in the past weeks for news that include the Tesla-Hertz deal and Lucid’s solid earnings.
Rivian’s IPO was arguably more successful than most expected, and the stock surged by over 70% in the first four trading days. However, as the buzz has died down a bit, RIVN has already corrected 25% since Tuesday, November 16.
It is hard to have a conversation about whether Rivian stock is overvalued or undervalued now. Lack of revenues, earnings or cash generation limits the validity of the arguments. The good news for bulls is that the EV market has plenty of potential, at an expected CAGR of 23% through 2026. The bad news is that the impressive rally in EV stocks points at potential corrections and high volatility going forward.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)