3 Reasons to Market Rivian AutomotiveNovember 25, 2021
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Soaring 50% from its Nov. 10 IPO cost of $78 for every share, Rivian Automotive (NASDAQ:RIVN) has hit the floor jogging. But even though the hyped-up electric automobile (EV) automaker has richly rewarded its early backers, new investors could be left keeping the bag simply because of its too much valuation and absence of aggressive rewards. Let’s check out the motives why Rivian seems to be as well expensive for what it has to present.
1. Rivian’s “skateboard” tech is not a match-changer
Launched in 2009, Rivian is a U.S-centered automaker centered on constructing electric SUVs and pickup vehicles. It sets itself apart by specializing in the utility-auto market. The enterprise depends on a modular chassis design called the “skateboard,” which properties the battery and other components in a single device that can be adapted to its entire lineup and marketed to other automakers.
Rivian’s skateboard module can enable simplify its provide chain, permitting the organization scale up a lot quicker. But though the notion has garnered desire from other firms like Ford and Amazon (which is reportedly doing work with Rivian to construct 100,000 skateboard-centered delivery vans by 2030), Rivian is also experiencing difficulties from its partners.
In November, Ford dropped plans to co-create an EV using Rivian’s technologies. And this follows the cancellation of designs to build a Lincoln EV applying Rivian’s skateboard in 2020. According to Ford’s CEO Jim Farley, the improve in plans has to do with the complexity of combining Rivian’s architecture with Ford’s software package, along with Ford’s individual technological strides in establishing EVs.
The cancellation implies that Rivian’s skateboard structure may not provide enough benefits for external automakers to take into consideration it worthwhile to include into their autos. And this begs the question: What is so special about Rivian, in any case?
2. Stiff competition
With Rivian’s skateboard not hunting like a video game-changer for the EV marketplace, its financial moat looks drastically shallower. And in conditions of branding and economies of scale, the company may perhaps battle to create by itself against noticeably better-positioned rivals.
In the utility-auto area of interest, Ford has a obvious branding edge. Its F-Series line of pickup trucks has been America’s very best-providing pickup for 43 a long time in a row. And its lineup is now becoming tailored into EV models these as the all-electrical Ford F-150 lighting and electrical Ford Expedition SUV, both equally for the 2022 model 12 months. Ford ideas to have 40% to 50% of its income quantity all-electric powered by 2030. Ford’s transformation tends to make it a immediate competitor to Rivian, which is targeting essentially the exact same current market for electrical vehicles and SUVs.
Rivian will also experience competitiveness from Tesla — which aims to capture industry share in the utility car or truck section with its cyber truck, which is anticipated to start in late 2022.
3. Astronomical valuation
With a market place cap of $104 billion, Rivian overshadows Ford (well worth $77 billion) and Basic Motors (truly worth $93 billion), in spite of not producing material earnings with a web reduction of $288 million in the third quarter. The firm’s valuation is challenging to justify mainly because the legacy automakers are substantially more ahead in essentially creating and providing EVs.
For case in point, Ford’s EV revenue volume surged 195% calendar year over yr to 14,062 motor vehicles in Oct on your own. But Rivian has only shipped 156 R1T pickup vehicles as of Oct (predominantly to Rivian staff members). And when the upstart will possible scale up its production around the lengthy time period, so will its rivals.
Is this conclusion of essential investing?
Rivian highlights an intriguing craze in fiscal markets the place buzz and speculation are commencing to overshadow fundamentals in asset valuations. We saw it with the meme-inventory trend in late 2020, and now with meme cryptocurrencies in 2021. Rivian appears to be element of this zeitgeist.
It may possibly be tempting to assume “this time will be diverse,” but financial history from the dot-com bubble to the housing crisis tells us this is hardly ever the case. So will not be remaining holding the bag when the Rivian bubble pops.
This short article signifies the opinion of the writer, who may perhaps disagree with the “official” suggestion position of a Motley Fool premium advisory assistance. We’re motley! Questioning an investing thesis — even one of our personal — aids us all believe critically about investing and make selections that aid us come to be smarter, happier, and richer.