$Rivian Automotive, Inc.(RIVN)$ Today I want to tell you why Rivian, the electric car company that is best known for moving people down tax brackets, is now a buy.
Scroll to the end if you want the TLDR. Also fyi not a bag holder, my cost basis is $12.60/share ($13.87 now). Full disclosure, I'm leveraged to the tits on this trade.
Trading Below Net Assets
Rivian has fallen 90% since its IPO at the end of 2021.
Rivian’s market cap is now only $13b. It has $12b of cash on hand and $14b in shareholder equity (assets minus liabilities). Its existing factory will be able to produce 150k vehicles/year when fully operational, at $75k/vehicle that will generate $11b in revenue. Its second factory is already in the works to build the next generation (R2), which will be cheaper.
For comparison, Tesla is trading 11x shareholder equity and 6.4x revenue. Tesla is a better company but not a better stock.
Rivian Actually Makes Great Cars
Marques Brownlee reviews (big tech review guy) owns one and likes it. Even its detractors say its handling is unmatched in the EV space. The SUV pickup space is the hottest sector in the US car market.
Demand for EVs is massive and will grow exponentially over the next decade. Making vehicles that look great, handle great and have some nifty features is more than enough to sell everything you can make. Rivian has years of orders with little to no marketing.
There's not too much competition, Cybertruck looks weird and isn't available yet, Ford F150 Lightning is being made in very small amounts.
They’ve also gone after the delivery van space with an exclusive deal to supply Amazon. Electric vans make more sense than semi-trucks, as road weight limits reduce carrying capacity due to the weight of battery packs.
RJ Scaringe Doesn’t Have To Be A Rocket Scientist
The CEO of Rivian, RJ Scaringe, isn’t a grandstanding visionary. He’s slightly awkward, introverted and thoughtful with a genuine passion for crafting great cars. While Rivian won't be offering robotaxi trips to mars anytime soon, I'd argue they don't need to do more than make great cars for a rapidly growing market.
When an industry needs to be created or revolutionized you need visionaries who can take 0 to 1. Electric cars are coming out of that phase and into one of iterative improvement. We will increasingly need leadership with high attention to small details, who will perfect what already exists.
Rivian isn't burdened with a sky-high valuation requiring earth-shattering innovations to maintain.
Emeralds Can Crack
Being politically active on Twitter and divorced is a bad combination. What Elon craves most of all is attention and then validation. The constant **-sucking from fringe crazies and mocking from normal people is going to drive him further out there. He doesn’t have close friends, is cut off from his family and can’t hold down a relationship. There isn’t a counterbalance in his life to stop him from getting nuttier.
This is going to bleed into the Tesla brand, particularly if he fully loses it.
EV Is Supply Constrained
Last year 750k/16m vehicles sold in the US were electric. Over the next decade EVs will reach almost 100% market share for new vehicles. The last few covid/slowdown years have been awful for car sales but EV has kept powering on despite this.
Meeting this demand is the hardest part. Heavily indebted, low multiple, traditional car companies have invested hundreds of billions into factories that are becoming obsolete. EVs are a radically different business from combustion. The Ford f150 lighting is a great car, but they shipped just 3,600 in the first couple of months of 2023. This is what creates the opening for new players that have a head start.
The Bad
Rivian is burning cash rapidly, it burnt $7b in the last year and is forecast to burn $4b this year. At this rate, it will need to raise more cash within 24 months. At the current low valuation, this would be very dilutive. They have a path to profitability but to afford rapid growth they’d need the share price to significantly recover.
The founder/CEO Scaringe looks to have sold most of his shares in the company which isn’t a sign of confidence.
Rivian doesn’t benefit from most of the massive Tesla charging network, building their own is expensive. Rivian isn’t as far along with self-driving AI.
Amazon has an exclusivity contract for the delivery vans, but they've ordered far less than originally promised. Rivian is looking to end the exclusivity agreement.
TLDR
Rivian has gotten killed along with the tech stocks it trades with. However, unlike tech stocks, Rivian has invested billions in hard assets, not intangible software. You can buy it so cheap that unless the business generates 0 ROI on its assets/cash, you're guaranteed to make a return.
Rivian makes great cars, that look incredible, in the hottest sector of the car market (SUV/pickups), in the exponentially growing EV space. They're benefitting from so many tailwinds, yet the stock is priced below net assets. Even with the challenge of raising fresh funds, their burn rate is decreasing, much of the heavy investment is already done and they have years of runway.
It's very difficult to see how this could go much lower, and it is very easy to see how it could go much higher. I foresee it being many multiples of its current value within a year or two.
---Resourse: wallstreetbets
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