Is Rivian Stock Undervalued Following Surprisingly Strong Delivery Numbers?

RIVN: Rivian Automotive logo
Rivian Automotive

Electric pick-up startup Rivian stock (NASDAQ: RIVN), which sells the R1T pickup trucks and R1S SUV, has gained by about 35% this year, as the production bottlenecks that weighed the company down over 2022 show signs of easing. For Q3 2023, the company delivered 15,564 vehicles, beating market expectations of about 14,000 units. This is also a considerable increase from the 12,640 cars the company delivered in Q2 and the 7,946 units delivered in Q1. The company expects to produce 52,000 vehicles this year, marking an increase from the 24,337 units produced in 2022.  Rivian also appears to have steered clear of the current price war in the EV space. While average EV prices stood at about $53,400 as of July 2023, down from $70,000 a year ago per Cox Automotive, Rivian indicated in its last earnings call that it would not slash prices. This indicates that demand for the company’s vehicles remains robust, with Rivian indicating that its current orders will take several months to fulfill at current production rates.

Interestingly, Rivian has had a Sharpe Ratio of -0.6, lower than 0.6 for the S&P 500 Index over the same period. This also falls short of the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Although we were 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 $22 per share. Rivian has proven its product development skills, with the R1T truck being awarded the coveted 2022 MotorTrend Truck of the Year, with the publication noting that it was “the most remarkable truck” it has driven. The company’s ongoing partnership with Amazon to sell the e-commerce behemoth 100,000 electric delivery vehicles by 2030 is also a vote of confidence in the company’s capabilities. Amazon began rolling out these vehicles in Europe around three months ago. While Rivian’s high cash burn has been a concern, the company has been cutting costs, with operating costs declining by about 15% versus last year over Q2 and its gross profit standing at $(412) million for the second quarter of 2023 as compared to $(704) million in the year-ago period, driven by easing inflation, the ongoing production ramp, and workforce reductions. Rivian is also well-capitalized, with cash holdings standing at over $11 billion as of the most recently reported quarter. Rivian’s valuation is also not expensive. In fact, Rivian’s market cap currently stands at just about $20 billion, implying that the market is currently valuing the company’s core business at just about $9 billion, excluding its cash. Based on a 2024 consensus revenue estimate of about $6.9 billion, Rivian’s core business is valued at just 1.3x consensus 2024 sales, which is reasonable for a fast-growing company that offers a very compelling product.

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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.

 Returns Oct 2023
MTD [1]
YTD [1]
Total [2]
 RIVN Return 0% 32% -77%
 S&P 500 Return 0% 12% 92%
 Trefis Reinforced Value Portfolio 0% 23% 533%

[1] Month-to-date and year-to-date as of 10/4/2023
[2] Cumulative total returns since the end of 2016

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