The Bursting Bubble in the New Energy Vehicle Sector: A Reality Check for Rivian

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I. Introduction: Impact of Lithium Carbonate Price Drop

The drastic fall in lithium carbonate prices this year has sent shockwaves through the entire upstream sector, reflecting the inevitable repercussions of capacity expansion. While the decline in lithium carbonate prices, a significant cost component in new energy vehicles (NEVs), is expected to lead to lower lithium battery prices and, consequently, affect the entire NEV market, major NEV manufacturers have yet to show substantial price reductions.

II. Current Scenario and Market Saturation: The Challenge of Penetration Rates

1. Pricing Trends and Market Saturation:

Despite the decline in lithium carbonate prices, most NEV manufacturers have not significantly reduced their vehicle prices. With NEVs often priced in the range of three to four hundred thousand, this pricing strategy risks saturating the customer base at this price point.

2. Importance of Penetration Rates:

The current key metric for NEV companies is penetration rates. As penetration rates exceed 30%, competition in the existing market becomes the norm. In this context, the bubble in NEV companies is expected to burst, leading to a rationalization of NEV company valuations and a proportional increase in traditional automakers' valuations.

III. Evaluation Shift: From Concept to Production and Sales

1. Transition to Real Metrics:

With increasing market penetration and heightened competition, the evaluation of NEV companies is shifting from conceptual appeal to production capacity and sales. This transition has exposed overinflated valuations of certain NEV companies that were driven by capital rather than tangible operational metrics.

2. Rivian's Valuation Struggles:

Rivian, often dubbed the "Tesla killer," experienced an unprecedented valuation exceeding $150 billion after its IPO, surpassing major automakers globally. However, within half a year, its market value plummeted by nearly 90%, currently standing at $18.2 billion, raising concerns about lingering overvaluation.

IV. Challenges Faced by Rivian: Cash Flow and Production Capacity

1. Rivian's Financial Challenges:

Rivian's stock decline has triggered a domino effect. The company's plan to issue $1.5 billion worth of convertible green bonds with a maturity date in 2030 may further dilute shareholder value and decrease earnings per share.

2. Cash Crunch and Production Data:

Rivian's financial struggles are evident in its fundraising efforts. Despite an IPO that raised a historic $120 billion, Rivian still faces a significant cash crunch. The company's production data for Q3 2023 shows a modest output of 16,304 vehicles against an estimated annual capacity of 52,000, lagging behind some domestic second-tier NEV manufacturers.

V. Conclusion: A Stark Future for Rivian

With the NEV market entering a saturated phase and Rivian's production capacity trailing behind domestic competitors, the company's valuation appears disproportionately high. The reality of the market is shifting towards tangible operational metrics, and Rivian's chances of survival seem limited as the capital bubble fades. The future for Rivian hinges on its ability to substantiate its valuation with practical production capacity, or else the capital bubble may devour the company.

Thank you for reading

$Rivian Automotive, Inc.(RIVN)$ 

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