Rivian: Even At A Lowered Valuation, Don’t Buy This IPO

Summary

Despite the popularity of the electric vehicle market and huge gains in Tesla’s stock, we think investors should avoid the temptation to buy Rivian shares.

Rivian’s $52 billion valuation implies that Rivian will sell 2 million vehicles in 2030, or nearly 2.5 times the number of Tesla vehicles produced during the past 12 months.

These manufacturing milestones are highly improbable given Rivian’s lack of manufacturing infrastructure and experience as well as the intense competition it faces in the EV market.

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David Becker/Getty Images News Rivian ( RIVN ) is set to IPO next week with an expected valuation of ~$52 billion, the midpoint of its IPO price range. A $52 billion valuation is well below the $80 billion valuation the company originally sought, but it’s still too high.

Despite the popularity of the electric vehicle market and huge gains in Tesla’s ( TSLA ) stock, we think investors should avoid the temptation to buy Rivian shares.

We’re skeptical that Rivian’s IPO will deliver for investors even with the lower valuation. Investors shouldn’t buy a stock just because it’s in a hot sector.

Rivian has yet to manufacture a meaningful number of vehicles and competes with well-capitalized electric vehicle upstarts as well as incumbents like General Motors ( GM ) and BMW, which both have decades of experience and multi-billion dollar plans to expand EV production.

Rivian’s $52 billion valuation is about the same as Honda ( HMC ), which has world-class manufacturing capabilities and is investing heavily in a suite of electric vehicles. It makes no sense for Rivian to IPO with a valuation anywhere near Honda. Maybe, after several years of production and sales on par with Honda, Rivian would deserve a comparable valuation. But, to buy the stock at such a high price before the company has shown it can consistently produce more than a handful of cars seems ridiculous to us.

Rivian’s $52 billion valuation implies that Rivian will sell 2 million vehicles in 2030, or nearly 2.5 times the number of Tesla vehicles produced over the past 12 months and 66% more vehicles than Honda sold in the U.S. in 2020.

These manufacturing milestones are highly improbable given Rivian’s lack of manufacturing infrastructure and experience as well as the intense competition it faces in the EV market.

Investments from Amazon (NASDAQ: AMZN ) and Ford (NYSE: F ) do nothing to justify the IPO valuation. Those investments were made at much lower prices and simply position these companies to participate in what appears to be a very lucrative IPO for private investors and owners.

We believe the stock is worth $13 billion at best – a 75% downside to the midpoint IPO valuation of $52 billion.

Below, we’ll outline the impracticality of Rivian meeting the expectations baked into the expected IPO valuation. $52 Billion Valuation Makes No Sense

At its expected valuation of ~$52 billion, Rivian would be valued on par with Honda, a manufacturer that produced more than 4.5 million vehicles worldwide in fiscal 2021, and nearing Stellantis, BMW, and more. See Figure 1. At $1.2 trillion, Tesla’s market cap is off the chart and is therefore excluded from Figure 1.

Figure 1: Rivian’s Expected Valuation Compared to Competition Sources: New Constructs, LLC and company filings At Least Tesla Sold Vehicles Prior to IPO

With no revenue from actual vehicle sales, investors need to understand that Rivian is in its infancy. Unsurprisingly, Core Earnings were -$398 million in 2019 and -$982 million in 2020 and the company burned -$2.5 billion in free cash flow ( FCF ) in 2020. In other words, the company looks more like a startup than one ready for an IPO. When Tesla went public in 2010 at a valuation of ~$1.7 billion, it was already delivering vehicles, and by the end of 2010, delivered over 1,500 units. Valuation Implies Rivian Will Take Huge Share of the Global EV Market

With less than 200 deliveries of its R1T vehicle, Rivian doesn’t have significant sales to generate a meaningful average selling price for its vehicles. However, if we optimistically assume the starting price of $70,000 for its R1S as its ASP, Rivian’s expected valuation implies the company will sell 1.1 million vehicles in 2030, or 4% of the projected global EV passenger vehicle market in 2030.Meanwhile, Bloomberg reports that Rivian is gearing up for production of upwards of 300,000 units, or just one-fourth the production implied […]

source Rivian: Even At A Lowered Valuation, Don’t Buy This IPO