Despite a 36% drop from a high of $179, electric-vehicle maker Rivian Automotive (NASDAQ:RIVN) still has a high valuation. Rivian Automotive has a large backer in Amazon, and sales are expected to skyrocket once the company begins deliveries next year.
Cashing In On The EV Boom
Rivian Automotive is one of the market's newer public electric-vehicle companies, having only recently completed its initial public offering (IPO). The electric-vehicle company, known for its R1T pickup truck and R1S SUV, made headlines in November when it went public. Demand for electric-vehicles, as well as stock in electric-vehicle companies, is likely at an all-time high right now, and Rivian Automotive is capitalizing on it. In November, the electric-vehicle manufacturer raised its IPO price to $78 from a previously expected price range of $72 - $76. Rivian Automotive stock immediately soared to $179.47 before plummeting to a range of $100 - $120, where it is now looking for support.
Source: finviz
Strong Partners Are Backing Rivian Automotive
Rivian Automotive, as previously stated, is one of the newer electric-vehicle manufacturers. Rivian Automotive's investors include Ford and eCommerce behemoth Amazon. Ford is investing heavily in the electrification of its manufacturing footprint in two ways: it produces its own Ford-branded electric-vehicles while also partnering with promising EV startups to make a buck. Amazon's investment in Rivian Automotive is even more strategic than Ford's because the retail giant requires a dependable partner to mass-produce electric-vehicles for Amazon's commercial fleet.
All of the prime packages that people order from Amazon's online store must be delivered, and Amazon is developing its own commercial truck fleet in order to be independent of third-party carriers. Rivian Automotive is owned by Amazon, which has a 20% stake, and Ford, which has a 12% stake. Because Rivian Automotive is now worth approximately $103 billion, Amazon's stake is worth approximately $21 billion, and Ford's stake is worth approximately $12 billion.
The main reason for Rivian Automotive's high market value is that the electric-vehicle manufacturer will grow sales extremely quickly this decade due to a (2019) agreement with Amazon to deliver up to 100,000 commercial vehicles. In addition, 55,400 pre-orders for the R1T and R1S electric vehicles have been placed. According to the company, deliveries will begin in March or April 2022. Based on an average sale price of $70,000, the value of the pre-orders is approximately $3.8 billion.
An Increasingly Congested Field
The electric-vehicle field, particularly in the pickup truck segment in the United States, is becoming crowded. Rivian Automotive's R1T is a high-potential electric pickup truck that has received favorable performance reviews during test drives. However, the competition is preparing to launch its own electric-vehicles, with more electric pickup trucks expected to hit the market soon. General Motors will soon release the 2022 GMC Hummer electric-vehicle, which will be available in both pickup and SUV configurations.
Early next year, Ford will release the 2022 Ford F-150 Lightning Electric Truck. Ford had to close reservations for the F-150 Lightning Electric Truck due to overwhelming demand. So far, the iconic American company, best known for its flagship F-150 Series, has received approximately 200,000 reservations for the F-150 Lightning.
Exceptional Balance Sheet
Amazon has a contract with Rivian Automotive to produce and deliver 100,000 vehicles until 2030, but the majority of this volume will not be realized until the second half of this decade. However, the agreement with Amazon provides Rivian Automotive with a funding advantage over other electric-vehicle manufacturers as well as a head start in terms of production growth. Rivian Automotive had $3.7 billion in cash and cash equivalents at the end of June, which is an exceptional cash balance for a company that is just getting started with deliveries.
Source: Rivian Automotive Company
What Are Realistic Sales For Rivian Automotive?
Few businesses begin with a single customer who consumes a decade's worth of production volume. Tesla (TSLA) is the only other company that received a similar-sized order in October, when it received a 100K delivery order from rental company Hertz. Tesla's valuation surpassed $1 trillion for the first time as a result of the delivery agreement.
Deliveries will begin next year and will rapidly expand. Revenues are estimated to be $3.5 billion and are expected to more than double each year until 2025. Rivian Automotive has a sales multiple of 30 based on $3.5B in sales for next year, which is roughly the same as Lucid Motors (LCID).
Source: yahoo finance
Risk To Sales Projections
Rivian Automotive is still in its early stages of expansion, and the Amazon delivery agreement provides significant impetus for significant increases in production this decade. Tesla, the EV industry behemoth with which Rivian will compete, has a sales multiple (forward) of 21. Investors are willing to place a high value on high-potential electric-vehicle makers, so Rivian Automotive's valuation is not out of line in the sector, however, it must deliver significant value to justify its valuation. If deliveries are delayed, we may see a significant sell-off.
My Conclusion
Rivian is pricey, but only in terms of next year's sales. Rivian is distinct from other electric-vehicle companies in that it has two major investors, one of whom is also a significant customer. As a result, Rivian Automotive's valuation may not be as exorbitant as it appears. Rivian Automotive will generate approximately $3.5 billion in revenue next year, giving the company a valuation of 30 times sales. Tesla has never been particularly inexpensive, so why should Rivian be?
On the Pulse
A financial researcher and avid investor with a keen eye for innovation and disruption, as well as growth buy-outs and value stocks. Keeping an eye on the pace of high tech and early growth companies, I write about current events and the biggest news surrounding the industry, and strive to provide readers with ample research and investment opportunities.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of RIVN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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