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Are Rivian stock investors just chasing a dream?


If investors want to bet on the strength of Jeff Bezos’ desire to trounce Elon Musk, Rivian Automotive Inc. (Nasdaq: RIVN) is the perfect way to do so. The important thing to remember, however, is that, as with any sort of gambling, while betting on Rivian has the potential for a big long-term payoff, there is just as much possibility that it could prove to be a loser.

Rivian was founded in 2009 by the company’s CEO Robert “RJ” Scaringe and began its life as Mainstream Motors. Scaringe rebranded the company as Rivian in 2011, a name that the Florida native derived from the state’s Indian River County and a nod to the electronic vehicle maker’s environmentally friendly aspects.

But it is the company’s first to market status as a producer of electronic pickup trucks, coupled with the involvement of Amazon founder Bezos and significant backing from the online retail behemoth, along with a sizeable investment from Ford, that have helped the electric vehicle (EV) newcomer’s stock price skyrocket.

What is Rivian worth then?

Since Rivian’s IPO on November 9, its stock price has soared so quickly and so high that Rivian currently holds a valuation in excess of $145 billion, making it the world’s third most valuable auto manufacturer – behind only Toyota Motor Corp. (NYSE:TM) and Tesla Inc. (Nasdaq: TSLA), the latter of which has a valuation around $1 trillion.

Enthusiasm for the stock, which priced at $78 per share, was so great that it opened its first day of trading on November 10 at $106.75, rising as high as $119.46 before closing that day at $100.73. The stock remained on an upward trajectory through November 16, when it reached a high of $179.47, before falling off a bit to close that day of trading at $172.01.

But enthusiasm seemed to wane a bit in its most recent day of trading on November 17, as the stock opened at $160.88, climbed back up as high as $163.00, but ultimately closed at $146.07 – a drop that industry experts attribute to investors becoming nervous about just how rapidly the company’s stock climbed to the level of the automotive industry’s biggest and longest players.

“With a market cap of well over $100 billion, Rivian is certainly performing well for a company that made $994 million in losses across the first half of 2021 alone. However, as an EV firm backed by Amazon, there’s certainly plenty of room for Rivian to grow into a dominant force across a rapidly growing industry,” said Maxim Manturov, head of investment research for Freedom Finance Europe. “Tesla, a market leader in the production of electric vehicles, boasts a market cap of more than $1 trillion at present. This indicates that, despite Rivian’s monumental debut price, there’s clearly still some room for growth,” he said, adding that Rivian is viewed as a serious threat to Tesla because it was the first to launch electric pickup trucks, which are the most popular vehicles in the U.S. and ultimately carry a higher payload.

Will pick up trucks make a difference though?

It is equally important to note that, while Rivian is the first electric vehicle manufacturer to get a pickup truck to market, the company has manufactured and delivered fewer than 200 trucks so far, a large portion of which have gone to Rivian employees. And though Rivian has already secured orders for around 55,000 trucks, in addition to the 100,000 trucks ordered by Amazon, it only expects to deliver around 1,000 trucks by year-end.

Looking ahead, Rivian expects to fill all its pre-orders by the end of 2023 and to have roughly 10,000 Amazon delivery trucks on the road as soon as 2022, with the full Amazon fleet to be delivered by 2030. It also doesn’t hurt the company’s prospects that the Biden Administration’s newly minted infrastructure plan includes roughly $7.5 billion in funding to create nationwide electric vehicle chargers in the U.S.

Should we be worried about the Rivian stock valuation?

Despite all its potential, not all analysts are embracing Rivian as a long-term investment, with its massive valuation proving a major red flag. “Rivian’s priced to sell as many cars in the next few years as it took Tesla to get to over 10 years. So, this stock is priced for beyond perfection, and I think this is a lot of the crowd trying to chase the EV dream and it’s silly,” David Trainer, CEO of Nashville, TN-based investment research firm New Constructs said in an interview with TD Ameritrade, adding that he believes the market is being irrational and that Rivian’s valuation should realistically be in the $13 billion range.

“The market caps of all the [EV] startups imply way more than 100% of the EV industry production by 2030… The value of all of these startups – all of them – effectively imply that the incumbents will go out of business,” said Trainer, noting that it would be unwise to discount the incumbent auto manufacturers that are also making significant investments in electric vehicles and have the added benefits of manufacturing expertise, steady leadership, track records and real-world knowledge about how to allocate capital.

“If you go back and watch any of these old movies about the original car companies there were a lot of companies that got in and got really high valuations, and most of them didn’t end up existing. And I think Rivian could be one of them,” Trainer said, adding that Rivian and many other EV stocks investors are currently sending to ridiculously high prices are the equivalent of meme stocks.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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