Rivian Automotive (NASDAQ:RIVN) has been one of the most talked-about names in the EV sector since its initial public offering (IPO) in Nov. 2021. The company raised a staggering $12 billion from its public listing and has the backing of e-commerce giant Amazon, which led to a $700 million investment round in Rivian in 2019.
That helped investors drive its shares briefly to a point where the company was valued at more than $150 billion, with virtually no revenue. But some stumbles and news that it won’t be the exclusive supplier for Amazon’s delivery vans brought shares right back down to the $78 per-share IPO price. That makes it a good time to look at what could be an additional boost, along with any potential pitfalls that could be ahead, for Rivian.
Image source: Rivian Automotive.
Green flag to watch
Ironically, what has been one of the top sources of pressure on Rivian’s share price also remains its biggest green flag to watch — that being its relationship with Amazon and the up to 100,000 delivery van orders that come with it. When Amazon recently revealed an agreement with Chrysler parent Stellantis for plans to also purchase electric commercial vans from that automaker, Rivian shares plunged.
But Amazon reiterated that its relationship with Rivian hasn’t changed and that it always planned to have multiple suppliers. One thing investors need to watch is how that relationship evolves. If it remains on track, and Amazon is happy with Rivian’s vans, that would represent a promising data point for investors.
Another area to follow in a similar vein is how the company’s R1T and R1S pickup truck and SUV, respectively, are received by consumers. The R1T, which starts at $67,500 and is meant for off-road and recreational use, has been named MotorTrend‘s 2022 Truck of the Year. Rivian says it had 71,000 reservations for both the truck and SUV as of Dec. 15, 2021. It already has enough annual manufacturing capacity for those pre-orders once it is ramps to full production, with plans for more, which is something else for investors to monitor. It will be important to note progress in ramping up production volume.
Image source: Rivian Automotive.
What to be wary about
The biggest factor that could turn into a red flag for investors is the possible combination of Rivian’s stock being overvalued and overextended. Even after the decline, Rivian has a market capitalization of $72 billion at its recent share price. There’s a lot of success already built into that valuation.
Rivian is planning ahead for that success. It currently has annual capacity to produce 150,000 vehicles at its Illinois factory, and it already has plans to increase that to 200,000. Additionally, the company has announced a site for its second manufacturing facility to be located in Georgia. Construction is scheduled to begin this summer, with production planned to start in 2024. That plant will have capacity for another 400,000 vehicles per year.
The company has only produced about 1,000 vehicles to date. Those are significant investment plans with the company yet to provide it can manufacture at scale and achieve even the current 150,000 rated annual capacity. If Rivian stumbles as its production ramps up, the high valuation likely won’t hold as investors view it as overextended with the capital being spent.
And there have already been signs of those stumbles. Its 2021 production was lower than it had initially targeted. And it subsequently admitted that its chief operating officer (COO) had retired. The company had not previously disclosed that to investors. Those two items are perhaps related, but the lack of disclosure from the company shows at the very least it needs to improve its communication to investors. Late last year, the company also told customers that it would delay producing vehicles with its largest battery pack option until 2023, as reported by Electrek.
Rivian said that delay was so it could work through the majority of pre-orders that include the smaller battery package. But it also highlights the struggles associated with manufacturing at high volumes. It’s still very early innings for Rivian, but investors will need to watch closely to see if execution improves. If problems persist, it likely won’t take long for the share price to drop. Its valuation is absurdly high based on its current fundamentals, and the stock could go much lower to bring it more in line with the realities of the business.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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George is Digismak’s reported cum editor with 13 years of experience in Journalism