Rivian Stock Looks Compelling At $20

Electric pick-up startup Rivian stock (NASDAQ: RIVN) has risen by about 17% since early January, although it has meaningfully underperformed the broader automotive index and other EV stocks. While the automotive space is benefiting from cooling inflation, the prospect of slower rate hikes by the Federal Reserve, and signs of easing supply chain issues, there are a few specific factors that have weighed Rivian down. The company has faced considerable challenges due to the semiconductor shortage and hiccups with scaling up its production. For 2022, the company’s production stood at 24,337 vehicles, falling short of the guidance of 25,000 units that the company issued in November. Investors have also been concerned that Rivian’s current delivery delays will lead to a loss of confidence with the fanatic customer base that the young company has built up. Moreover, there were also reports that some of the company’s long-tenured employees, including key body engineering and supply chain leaders, had left the company. Ford, an early backer of Rivian, indicated that it had sold almost all of its stake in the company.

Although we remained negative on Rivian stock when the company went public in November 2021 due to its lofty valuation, which at one point stood at over $130 per share (translating into a $100 billion-plus market cap), we think the stock is good value at current levels of about $20 per share. Rivian has compelling and much sought after products in the R1S and R1T and the vote of confidence from Amazon, a major investor, which is buying 100,000 delivery trucks from the company, is also a positive. While Rivian’s high cash burn has been a concern, the company has been scaling back on its expenses, indicating a 6% reduction in the workforce earlier this month. Rivian is also exceedingly well-capitalized, with net cash standing at over $13 billion as of the most recently reported quarter (September 2022). Rivian’s valuation is also attractive. In fact, Rivian’s market cap currently stands at just about $19 billion, implying that the market is currently valuing the company’s core business at just about $6 billion, excluding its cash. Based on a 2023 consensus revenue estimate of about $5 billion, Rivian’s core business is valued at just 1.2x consensus 2023 sales, which is reasonable for a fast-growing company that offers a very compelling product. We also think Rivian is better placed to handle a potential economic downturn versus other automotive players, given that demand is considerably outstripping supply at this juncture, with supply chain-related issues also likely to ease.

Want exposure to the electrification of the automotive industry, without picking individual EV brands? Check out our theme on EV Component Supplier Stocks for a list of companies that stand to benefit from the big EV transition. The theme remains up by 19% this year. 

[1] Month-to-date and year-to-date as of 2/19/2023
[2] Cumulative total returns since the end of 2016