Rivian stock analysis

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Rivian stock analysis: At the heels of Tesla, has Rivian now run out of gas ?

Avatar of Matthias Krey
Matthias Krey

Table of Contents

To reduce global carbon dioxide emissions, widespread replacement of traditional gas powered engines with electrical vehicles (EV) is critical. EV markets for passenger vehicles are expected to boom in the coming years, as governments enact favorable policies and encourage clean energy transitions. Many EV companies have filled the personal passenger vehicles space, but fewer companies have focused specifically on fully electric pickup trucks and sports utility vehicles (SUVs).

 

One U.S.-based EV company, Rivian Automotive Inc., has made this market central to its vision. Founded in 2008, the company aims to go even bigger than Tesla in still untapped product lines for pickup trucks and SUVs. The company is building an entire ecosystem around its vehicles and seeks to vertically integrate its supply chain. In recent years, it has made some impressive strides, but now it faces some substantial challenges. Here are a few notable highlights about this share, which are explored further in the stock analysis:

 

1) Price jumps and dives: Last year, the company went public in with an initial price of $78 per share, reaping almost $12 billion as shares soared to an all-time high. But the stock was later sold off sharply over a period of weeks and is now trading for 60% less than the IPO price. 

2) Supply chain woes: Supply chain issues are slowing down Rivian’s production, and the global semiconductor chip shortage creates a particularly painful constraint. Markets have also seen substantial increases in the costs of metals like lithium, nickel, aluminum, and cobalt, while rising oil prices have hiked up freight charges and other raw material costs.

3) Deep pockets: After ten financing rounds, Rivian has amassed a huge war chest. The company ended 2022’s first quarter with almost $17 billion on hand, with which it can sustain its current $1-2 billion cash burn per quarter without the need for additional capital increases. It now has even more cash than Tesla.

4) Some big backers: Rivian has a noteworthy shareholder structure. Amazon acquired 158.4 million in Rivian shares, or around 17.6%, and it has a deal on the books with the company to supply 100,000 EV delivery trucks by 2025. Ford acquired 102 million in Rivian shares, or 11.3%, but later sold some off.

5) Climate accomplishments: In its operations, Rivian anticipates achieving climate neutrality by 2028, with carbon neutrality along its entire value chain by 2032. Additionally, the company invests 1% of its equity into high-impact climate initiatives that preserve and restore wildlands, waterways, and oceans.

 

Now let’s see whether an investment in Rivian is worthwhile. Enjoy the read!

 

Table of Contents

Business Overview

Basics

Rivian Automotive Inc. (NasdaqGS:RIVN) wants to follow in the footsteps of Tesla. The company designs, develops, manufactures, and sells electric vehicles (EVs) and their various accessories. Rivian’s strategy is clearly to go even bigger than Tesla, by moving into the untapped sectors of fully electric pickup trucks and sports utility vehicles (SUVs).

The company was founded in California, United States, back in 2008 by CEO and Chairman of the Board Robert “RJ” Scaringe. Thirteen years later in November, Rivian went public with an unconventional IPO: it received investments from both Amazon and Ford, prompting a booming share price that has since collapsed.

Business model

Rivian manufactures EVs in the premium sector and, like Tesla, seeks to build an entire ecosystem around its vehicles. It also aims to vertically integrate its supply chain for improved quality and lower costs.

Rivian envisions producing the all-important components for its vehicles – namely, battery cells and software – as well as establishing an expansive network of charge and service stations. The company is also cutting the car dealership stage from the value chain, with customers now able to customize their vehicles directly on the website and pay with flexible financing options.

The product portfolio includes three separate vehicles:

  • R1T, a pickup truck
  • R1S, a large SUV
  • EDV, a delivery van in partnership with Amazon

Why is Rivian a Pure Climate Stock?

Globally, transportation accounts for around 20% of all greenhouse gas emissions. This mostly comes from the fossil-fuel-consuming vehicles that so many of us use on a daily basis, directly emitting carbon dioxide (CO2), the most pervasive greenhouse gas, into the atmosphere. By combining a transition to more renewable energy sources with a widespread switch to low-emission vehicles – for example, bicycles and electrified forms of transport, from cars to buses – a huge cut in global CO2 emissions can be made.

Nevertheless, EVs still require energy – and today, that often means energy sourced from a fossil fuel powered electric grid. But according to our Pure Climate Stocks Methodology, Rivian still makes the cut as a pure climate player. Why, you may ask? Despite the greater challenges of powering EVs with renewables, these vehicles already emit less CO2 than conventional cars in most countries. Moreover, they’re the alternative for individual transport with the highest acceptance among consumers to replace emissions from petrol consumption. In fact, EVs of all types already displace well over 1 million barrels of oil demand per day. And their electricity demands are not as much as one might think: a nearly full electrification of all road transport adds just 25% to global electricity demand by 2050.

In the United States, the average EV is cleaner than the average new gasoline vehicle found anywhere. It’s estimated that in European Union member states, the average EV will be more than four times cleaner than its conventional counterpart by 2030. And, as the electricity grid continues to source cleaner energy, EVs — whether new or used — will only get cleaner as well. This represents one distinct advantage that EVs have over gasoline vehicles, which have a fixed fuel economy – and, therefore, fixed emission levels.

 

In addition, Rivian is helping companies like Amazon, the second largest retailer in the world, to convert its delivery fleet to 100% renewable energy by 2030. In its own operations, Rivian anticipates achieving carbon neutrality by 2028, entire value chain, from suppliers to vehicle owner charging. A recently signed partnership with Nashville-based company Clearloop Solar Energy will give Rivian its first megawatt of renewable energy, slated to be used for their planned chargers in Tennessee state parks.

To add another feather in its climate cap, Rivian has also created Forever, an initiative that requires 1% of the company’s equity to be invested in high impact climate initiatives, with a particular emphasis on the preservation and restoration of wildlands, waterways, and oceans.

Although undoubtedly there are still challenges that remain for clean electric mobility, Rivian makes the cut as a pure climate player by obtaining 100% of its revenue from electric mobility, an essential industry for a positive climate transition. 

Factsheet

Share price development

On November 9th last year, Rivian went public with an initial price of $78 per share, above the expected range. The company reaped almost $12 billion and shares soared to an all-time high of around $180 by November 16th. However, the stock was then sold off sharply over the following weeks and months, and it’s now trading for $31, or 60% less than its IPO price. 

rivian share price development

Source: Bloomberg (2022);

Key figures

Unless otherwise stated, all figures are USD and trailing twelve months (TTM). Addition ‘(e)’ = expected in the current year.

Key data:

  • Market Capitalization: 27,880
  • Revenue: 150
  • Profit: -4,688
  • Free cash flow: -4,416 (annual)
  • Country: U.S.

Rating:

  • P/S ratio: 165.6
  • P/E ratio (excluding extra items, annually): -21

Growth & debt

  • D/E ratio: 6.28
  • Gross margin: -645%
  • Revenue growth (2019 – 2021): N/A, first year of revenues

Business breakdown: business model & strategy analyzed

Let’s look at Rivian’s business model and strategy in more detail:

How strong is the sales growth?

In September 2021, the company delivered its first electric vehicle, going on to sell a total of 920 vehicles in 2021. The number of vehicles sold has increased during 2022. Rivian produced 2,553 vehicles in the first quarter, delivering 1,227 to buyers. It also counts more than 90,000 preorders of the R1 EV, including an additional 10,000 after its March price increase. Furthermore, Rivian still has a deal on the books with Amazon for 100,000 delivery trucks to be delivered by 2025. 

In terms of numbers, the company has just started reporting sales in 2021, achieving some $55 million in revenue, which is supported by vehicle deliveries. In the first quarter of 2022, this number almost doubled, hitting $95 million in sales.

Nevertheless, the company still operates in the red, with a negative gross profit of $465 million in 2021. Since they keep producing vehicles in low quantities, their forecasts suggest continual negative gross profit, in part related to significant labor and overhead costs in the short term. They expect this margin will improve on a per-vehicle basis as production ramps up faster than future labor and overhead cost spikes.

Since operating costs continue to rise as well, in the aggregate, Rivian has reported a net loss of nearly $4.6 billion in 2021, as compared to $1 billion in 2020. So Rivian doesn’t expect to achieve profitability for the foreseeable future. Instead, they plan to from their revenues to continue financing growth.

What is the business model and strategy?

How does the company make money ?

Rivian designs, develops, and manufactures EVs and their accessories. The company has a direct-to-customer model for managing all sales, deliveries, and service operations in-house, without relying on a franchised dealership network or other third party partners. Currently, it’s allowed to sell directly to consumers in 22 U.S. states, including California, Florida, Arizona, and Illinois, as well as Washington D.C.

  

Rivian’s consumer market products are: 

(i) R1T, its signature two-row, five-passenger pickup truck

 

(ii) R1S, a three-row, seven passenger SUV, which shares 91% of its components with the R1T. Originally slated for release in December 2021, it has now been pushed back to summer 2022.

 

For these two products, Rivian is focused on the development of performance (i.e. speed of vehicles), utility (i.e. range of driving, currently at 600 km per charge) and efficiency (i.e. controlling for energy consumption).

 

Additionally, Rivian is developing a product for the commercial market:

(iii) EDV, a delivery van with an RCV platform, which was designed and engineered in collaboration with Amazon.

Alongside their commercial vehicles, Rivian has FleetOS, a proprietary, end-to-end, centralized fleet management subscription platform. It includes vehicle distribution, telematics, software services, charging, connectivity management, Driver+, and lifecycle management services. Building upon this solid foundation, FleetOS is slated to continually roll out additional features over time, including leasing, financing, insurance, driver safety and coaching, smart charging and routing, remote diagnostics, 360° collision reports, and vehicle resale.

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Notably, all Rivian’s vehicles are complemented by a full suite of proprietary, value-added services that take aim at each stage of the vehicle lifecycle. The company has built a four pillar, vertically integrated ecosystem that is comprised of:

(i) Vehicle technology, including vehicle electronics, battery, electric drive, chassis, software, and experience management.

(ii) Rivian Cloud, or interconnected software applications.

(iii) Product development and operations, including design, development, manufacturing, sales, delivery, service, and charging

(iv) Products and accessories (see above).

(v) Services

(vi) Data Analytics, or the ecosystem that is interconnected by their proprietary data and analytics backbone and is housed in Rivian Cloud.

rivian area of applications 1

Areas of application and relevance of the product/service

Rivian’s vehicles fit into two separate markets:

  • Consumer market: Rivian’s pickup truck and SUV are designed for individual customers and personal use.
  • Commercial market: Rivian’s delivery van is focused on last mile delivery and can be used by various e-commerce and distribution services, such as Amazon, FedEx, or UPS, among others.

Deep Dive: Mechanisms of the Business Model

What is Rivian’s strategic ?

Rivian strives to vertically integrate its supply chain, all the way up to customer delivery, and be able to produce higher quality vehicles while keeping a solid control over its costs. The strategy closely resembles that of Tesla, which obviously found some substantial success with it. Traditional automakers strongly rely on a big network of suppliers and partners, a network that serves to reduce capital expenditures and increase flexibility.

Rivian has also developed a scalable floor assembly strategy, one that allows several vehicle types to be built in the same space, with its SUV and pickup truck sharing 91% of components.

 

rivian strategic goals

Is the company on a road to ramp-up production?

Rivian’s main goal can be summed up simply: ramp up its production to be meet demand for its products. At present, the company has a production plant with a maximum output capacity of 200,000 vehicles a year. According to plans, ground will be broken on a second plant by mid-2022, adding an additional capacity of 400,000 vehicles by 2024. In a few years, Rivian could even approach the size of Tesla. But there remains a long and winding road ahead. By comparison, Tesla delivered 936,222 vehicles in 2021 alone, and just over 310,000 units during 2022’s first quarter.

Rivian has already produced 2,553 vehicles in the first quarter, and it has said it’s on track to meet its production goal of 25,000 EVs for 2022. But that’s half of its original estimate of 50,000 vehicles. Additionally, Rivian is still pushing back the release date of its R1S SUV.

Moreover, supply chain issues are still slowing down production, and according to CEO Robert Scaringe, the global semiconductor chip shortage represents the most painful constraint. Rivian doesn’t have long-term agreements with all its chip manufacturers and suppliers.

The problem is compounded by the fact that markets have seen substantial increases in the costs of key metals, including lithium, nickel, aluminum, and cobalt. Furthermore, rising oil prices have also hiked up freight charges and other raw material costs.

Another hurdle came in the form of a lawsuit, filed by Rivian on March 9th, after a company supplying its seats nearly doubled their initially agreed upon price. The seats are for Rivian’s commercial vans, set to be delivered to Amazon, its key client. While the dispute is still ongoing, Rivian has even warned that, if it is not resolved, it could be forced to shut down its commercial van altogether.

In another move, Rivian attempted to hike the price of its R1T electric pickup and the R1S SUV by around 17% and 20%, respectively. The company even attempted to tack these price increases to existing orders, but it to back down after strong customer backlash. These developments might suggest that the original R1T and R1S pricing was unprofitable. Rivian also decided to scrap its 5-seat R1S, leaving only the 7-seat version in production.

How is Rivian financing its growth?

After ten financing rounds in total, the company has amassed a substantial amount of cash. Rivian seems to have a large enough cash cushion – it ended 2022’s first quarter with almost $17 billion on hand – to sustain its current without the need for additional capital increases. It now has even more cash than Tesla. According to projections, RIVN has sufficient cash runway for 2.5 years, if free cash flow continues to drop at historical rates of 70.1% each year.

Rivian has a noteworthy shareholder structure. Amazon acquired 158.4 million of Rivian shares, or around 17.6%. Ford acquired 102 million of Rivian Shares, or 11.3%, further suggesting that the company has potential. But Ford then sold a total of 15 million Rivian shares in May 2022, leaving its share in Rivian at just under 10%. Moreover, Ford stepped down from Rivian’s board of directors and, in 2020, cancelled their vehicle partnership with the company. Amazon also seems to be casting its eyes elsewhere, partnering with Stellantis to develop electric delivery vans for its fleet.

Evaluation of the Business Model
  • Network effects

There are no network effects. Rivian’s

 products and services don’t get better when adopted by more users.

  • Sales with lock-in

Although Rivian can get revenue from services and charging stations, the lock-in is not significant.

  • Economies of scale

Rivian has the potential to achieve great economies of scale. However, in terms of the semiconductor chips, it’s still strongly dependent on manufacturers, a situation that is currently hampering its efforts to scale.

  • Proprietary technology (moat)

Although the company has put out the first electric pickup, other traditional automakers and EV startups are very close behind on releasing products with similar technology. In this respect, Rivian doesn’t hold a technological advantage.

  • Branding

Through its partnership with Amazon, as well as Ford’s investment, Rivian has built a strong and renowned brand that has already placed thousands of preorders on its books.

Market analysis : Can Rivian lead the large EV surging market?

Market size and competitors

Rivian holds an advantageous position with its R1T, the first electric pickup to hit the market. But its pickup will not be the last. Both traditional automakers and new EV market entrants have announced plans to launch EV pickups starting this year. Tesla is a bit behind, but it plans to begin production for its Cybertruck sometime in 2023.

On the other hand, in the EV SUV space, Tesla has already led the way with its Model X, but sales are relatively small, and Rivian’s R1S still has a chance to compete successfully.

In general, the EV market still is growing steadily and with ever accelerating speed.

rivian ev market

Source: IEA (2022)

Over the next few years, EV sales are set to jump sharply, rising from 3.1 million in 2020 to 14 million in 2025. Globally, this represents around 16% of total vehicle sales in 2025. However, vans and trucks still represent a tiny share within EV sales.  

rivian ev market VEHICLES

Source: Bloomberg EV Outlook 2021

Adoption of EVs in the commercial van and truck market – given the confluence of greater model availability, corporate fleet commitments, favorable economics, and rising environmental concerns – is expected to pick up speed.

Not surprisingly, Rivian’s main competitors are: Tesla; traditional big automakers like GM, Volskwagen and Ford that have announced releases of their own electric pickups and SUVs; and EV startups like Lucid, Canoo, Nikola, and others.

In the following table, we compare the most relevant financial data from Rivian, Tesla, and Lucid.

 

Rivian

Tesla

Lucid  

Revenue 2021 (in million USD)

55

53,823

27

Net income 2021 (in million USD)

-4,688

5,524

-2,579

 

-4,220

 

6,523

 

-1,533

Free cash flow  (2021, in million USD)

-4,461

-3,483

-1,479

Market capitalization (in million USD)

24,759

789,035

29,770

 

As you can see, Tesla is the only pure play EV automaker that is profitable so far, setting grim outlooks for its recently starting competitors. Although Rivian appears to be losing the most money, the company actually has more cash disposal even than Tesla, when taking into account the money it received from its funding rounds and IPO. Moreover, it’s better positioned in terms of sales, with more vehicles sold than Lucid, not to mention its preorders and the Amazon deal.

Growth drivers and outlook for the EV market

The reasons for surging EV sales are as follows:
Acceleration of EV adoption

EV adoption is booming, as consumers and businesses come to understand the wide-ranging benefits – whether as products or for purely environmental reasons – of EVs. With cost of EV ownership no longer a significant barrier for consumers, there’s a golden opportunity for approximately 90 million vehicles to be sold globally each year, in the worldwide drive to transition to EVs. According to representative surveys, almost half of all Americans could imagine the electric car becoming a viable alternative to combustion engines. Even at automotive expos, an affair traditionally dominated by gasoline engine sales, Ford and GM’s electric pickup trucks models are now among the most popular vehicles. Such strong demand for the green pickups suggests that even buyers from rural areas, as opposed to more liberal cities, are joining the movement.

Rising policy pressure

Through targeted policies, local, regional, and national governments are incentivizing or mandating the sale of EVs, while also eliminating the sale and use of internal combustion engine (ICE) vehicles. To date, approximately 17 countries have either passed or are considering legislation to phase-out the sale of ICE vehicles between 2025 and 2050. The United States, as well as several countries in Europe and Asia, offer both financial and non-financial benefits to EV owners, such as tax credits and improved roadway access. In particular, the U.S.  is weighing the expansion of several programs (including regulatory credits) to promote EV adoption throughout the country. In November 2021, the government also announced an ambitious 50% electrification target for new cars by 2030, further bolstered by its announcement of the installation of 500,000 charging stations to boost consumer confidence. In Europe, the EU Commission proposed lowering the CO2 emission limit standard for new cars to zero by 2035.

Batteries keep getting better

Average battery energy density is rising at 7% per year, and new chemical processes are hitting the market faster than ever. Maximum EV charging speeds are also on the rise.

Falling lithium-ion battery prices

Lithium-ion battery pack prices fell 89% from 2010 to 2020. Some other key material prices will play a bigger role in the future, but the introduction of new chemical processes, new manufacturing techniques, and simplified pack designs keep prices on a downward trend.

E-commerce growth creates demand for delivery vehicles

E-commerce growth has driven a dramatic rise in last mile parcel and food delivery. In 2020, e-commerce sales grew 32% in the United States. As consumer demand for e-commerce accelerates further, the demand for commercial delivery vehicles is expected to grow at a similar pace. Thanks to short, predictable routes, the need for efficient operations – not to mention their ability to offer lower total cost of ownership relative to ICE vehicles – EVs sit well-positioned for commercial delivery. Companies such as Amazon, DHL, UPS, FedEx, and Ikea have publicly pledged to transition their delivery operations entirely to EVs, in order to help reach net zero carbon emissions in the near to medium term.

However, there are alarming warning signals on the horizon coming from the EV supply chain. For starters, bulk material prices are rising for the entire auto industry. In , the price of metals climbed – steel by as much as 100%, aluminium by around 70%, and copper by more than 33% – impacting both conventional and electric car production. For electric cars, additional challenges were posed by price spikes for materials needed to manufacture batteries: the price of lithium carbonate increased by 150% year-on-year, graphite by 15%, and nickel by 25%, to name a few. But for the time being, average battery prices have not yet increased. It’s important to remember that battery prices remain on a long-term trajectory of decline, and continued technological progress has helped offset higher raw material costs. Moreover, there’s also a time lag between material price spikes and battery price increases. But, if battery metal prices do continue to rise, battery prices will surely be affected.

Asset 4

SWOT analysis: strengths, weaknesses, opportunities, and threats analyzed

Let’s now turn to the various strengths, weaknesses, opportunities, and threats embedded in Rivian’s current business model.

Strengths

  • The company has gained the trust of major stakeholders Ford and Amazon, which has increased brand awareness and popularity while guaranteeing consistent revenue flows (from Amazon).
  • Rivian has a sizable cash cushion to burn through before requiring additional capital increases, that would potentially dilute current investors.
  • Its upcoming models have thousands of pre-orders that, when delivered, guarantee rising sales for Rivian.

Weaknesses

  • The company continues to see losses in the billions, and it has a long way to go before it becomes profitable. (For perspective, it took Tesla 10 years to hit profitable status.)
  • Rivian’s production is still relatively small, as compared to traditional automakers and Tesla, and its ramp up appears to continuously come under threats. Even members of its management team have limited experience in EV production.
  • Its product-market fit isn’t guaranteed since the company is only now testing its first models.
  • Changes in board membership, particularly with Ford giving up its seat, have created a sense of instability that can affect management decision-making.
  • Rivian’s decision to raise prices for existing orders has created customer conflicts that could serve to tarnish the company’s image.

Opportunities

  • The large EV market remains mostly untapped by competitors, a situation that gives Rivian a first mover advantage to capture more market share. This dynamic is particularly true for the pickup market.
  •  EV demand and adoption is growing in the United States.
  • Continual policy support is very likely. In the United States, the federal government has even announced its target to buy only EVs by 2026.

Threats

  • Today, the EV industry faces growing competitive pressure from both early-stage and long established companies that can spark price wars and impact margins. For instance, Ford has just released its own electric pickup at a lower price, and Volkswagen recently announced plans to take on the U.S. market for electric SUVs and pickups.
  • Bulk material prices are going up for the entire auto industry, and, if they continue to rise, battery prices will soon reflect these spikes, putting additional pressure on the margins.
  • Rivian has no real experience in scaling production for EVs. They still have the rough patch that Musk famously coined “production hell” to look forward to. Their ramp up plans are so ambitious that they could fall short, meaning Rivian could pull in significantly less revenue than initially anticipated.
  • Rivian faces issues with its primary stakeholders. Ford sold 15 million shares in May while Amazon is looking for additional providers, with its new partnership with Stellantis.
  • Rivian’s current lawsuit against its delivery van seat producer could risk tanking the entire Amazon contract for 100,000 vehicles – a crucial deal for the company’s profitability.
  • Rivian’s direct-to-customer model faces hurdles in some U.S. states, due to dealership laws.

Scenario analysis: Is Rivian trading at its fair value?

Calculating the fair value of any company is always tricky business. To do so, several core predictions and assumptions need to be taken into account. Armed with our comprehensive overview of Rivian, as outlined above, let us now take a look at the stock, compare quality and valuation, and draw some conclusions.

The fair value of the share

To determine Rivian’s fair value, based on data and analysis, I’ve made the following assumptions for the next 10 years:

# 1 Sales growth

My valuation model works with growth estimates for 2022-2026 (short-term) and 2027-2031 (long-term). Here’s how I determined growth for these two periods:

  • Since Rivian just started generating revenues in 2021’s last quarter, sales growth is estimated through a proxy of the production capacity ramp up and utilization, which will translate to actual deliveries. In the last nine months, Rivian has produced more than 5,000 vehicles, and it has delivered 3,473 vehicles as of May 2022. It expects to make another 25,000 for the entire 2022, and if it manages to deliver nearly all of those vehicles – given a backorders account for almost three times that number – it could hit at least around $1.75 million in sales. As sales price, I’m using an average value of about $75,000 (R1S is starting at $72,500 and R1T at $67,500 but there is a planned increase in price to over $93,000.)
  • With these estimates from 2022 to 2026, my personal short-term prediction is that Rivian will see a significant growth in sales in the first two years that will then stabilize, reaching an average annual growth rate of 330% for the five-year period.
  • Here’s my long-term prediction for Rivian: a constant 20% growth rate after that initial exponential stage of growth.
# 2 Net margin

Rivian’s net margin is negative (-8,500% in 2021) and expected to remain so, reducing only gradually over at least the next three years. My personal estimate for the long term is that Rivian will hit a positive net margin, at similar levels as Tesla’s 6% margin, with an overall 10-year average of 3% from 2022 to 2032. 

# 3 Evaluation level

Today, the stock has a negative P/E ratio of -21, and it will most likely stay negative for at least the next three years. In the long term, when the company becomes profitable, I personally expect it to see a P/E ratio around 20% lower than Tesla’s, given that the giant automaker has considerably more advanced software innovations (e.g. autonomous driving) to offer than Rivian. Therefore, I assume that the Rivian share will be valued at an average P/E ratio of 13.

table 2 03.06.

table 03.06.

My return expectation

According to the yield calculator, the stock currently looks significantly overvalued. Only in the very optimistic scenario, the potential yield is significant (100%).

Conclusion: Buying Rivian - Pros and Cons

Pro

  • Growth in both the EV market and EV adoption is consistent, and Rivian has a first mover advantage and strong brand, which could help it capture a sizable share of the pickup and SUV sector.
  • Rivian has a substantial cash cushion that gives it at least 2.5 years to continue ramping up its production.
  • Strong preorder numbers and the Amazon deal give a revenue guarantee for the coming years, if the company can deliver.

Contra

  • The share price appears to be significantly overvalued, and it seems likely that it will drop further in the near future.
  • Rivian has no production scaling experience, which puts the company in a tricky spot with competition in the EV market growing and putting pressure on margins – not only from early stage companies like Rivian, but from more established automaker competition.
  • Rivian faces risks from rising costs in its supply chain that could also affect both its deal with Amazon and its ramp up capabilities.

My opinion

Following its stock price decline of more than 75%, down from its all-time-high, is Rivian an interesting stock to buy? Personally, I find that the valuation of Rivian points to not buying the stock now. Although the stock price has indeed come down, the upside is fairly limited while potential downsides and risks are immanent.

According to my personal scoring, Rivian only gets 29 out of 100 points, a very weak score, due primarily to its unproven track record and still very high valuation. I’m convinced that Rivian has chosen an interesting niche in the sizable U.S. market, but for me, to buy Rivian stock in this situation would be a big gamble on EV pickup truck growth actually becoming a success story. Due to its low production volumes, I still consider Rivian a venture investment. Many things have to go right for Rivian, in order for the stock to justify its current price. If Rivian falls short, producing fewer EVs than the current production plan foresees – whether due to problems with supply or with scaling – its current revenue estimates are obsolete. Its strong cash cushion makes it unlikely that Rivian would go bust in the next few years. But that wouldn’t help me as an investor, if I were to buy the stock at too high of a valuation. For these reasons, I won’t buy the stock now, but I’ll take another look in 12 months to see how successfully Rivian has scaled production and where the stock stands, at which point I’ll consider if the prospects for an investment look more promising.

Pure Climate Stocks scoring 1

In this content I am presenting my personal opinion as an active private investor. This content is not intended to provide investment, financial, accounting, legal, tax or other professional advice and should not be relied upon or regarded as a substitute for such advice.