To The Moon

$Rivian Automotive, Inc.(RIVN)$ announced on Monday that it has received conditional approval for a loan of up to $6.6 billion from the US Department of Energy to support the construction of its electric vehicle production facility in Georgia.

This news comes just ahead of President-elect Donald Trump's inauguration, with expectations that his administration may reverse many of the EV-friendly policies and incentives established by the Biden administration.

Stock Performance

RIVN stock has been highly volatile since its IPO in 2021, but such volatility can create excellent buying opportunities. After a recent dip, Rivian's stock has become too attractive to overlook, and there's a key reason to buy before the month ends. Since launching its first two luxury models, the R1T and R1S, Rivian has seen impressive growth, with sales increasing from just $1 million in September 2021 to over $5 billion today.

Price Chart

Growth

Growth Quarterly

This growth could continue with the upcoming launch of three more affordable models: the R2, R3, and R3X. Priced below $50,000, these new vehicles could drive the company into a new phase of growth, similar to what the Model 3 and Model Y did for Tesla.

Despite this progress, Rivian is still trading at a significant discount compared to other EV companies like Tesla and Lucid Group. Rivian currently trades at just 2.2 times sales, while Lucid and Tesla trade at 6.5 and 12.3 times sales, respectively. If Rivian's valuation aligned with these companies, there could be a 200% to 600% upside.

Market Sentiment

A key near-term catalyst could help close this gap quickly. The market remains skeptical of Rivian due to its continued net losses, as it still loses tens of thousands of dollars on each vehicle sold. While this is a challenge for smaller EV manufacturers like Rivian and Lucid, larger competitors like Tesla have managed to achieve positive gross margins for years. In an industry with many bankruptcies, investors are waiting to see Rivian reach profitability before valuing it higher, especially given that its sales growth has slowed over the past year.

Despite Rivian's currently low valuation, the company is on the brink of achieving gross profitability, according to management's projections. If this happens in the coming quarter, there may be limited time before this potential becomes a reality.

Last quarter, Rivian reported a loss of about $39,000 per vehicle, an increase from the previous quarter's loss of $32,700. Despite this, management reaffirmed that the company is on track to achieve positive gross margins by next quarter. This would be a remarkable achievement, and while the market remains understandably cautious, there's little doubt that Rivian's stock would likely see a strong positive reaction if this milestone is reached.

Investment Thesis

DOE loan to build Georgia EV plant

• Rivian has received conditional approval for a $6.6 billion loan from the U.S. Department of Energy to help fund its production facility in Georgia, part of its expansion strategy.

• The company recently secured a $5.8 billion investment from Volkswagen as part of a joint venture to boost its technology development.

• Rivian has posted impressive growth in sales, reaching over $5 billion in revenue, up from just $1 million in September 2021.

The loan is part of the U.S. government's Advanced Technology Vehicles Manufacturing (ATVM) loan program, which has previously provided low-cost loans to automakers such as Tesla (TSLA), Ford (F), and General Motors (GM).

Rivian had initially estimated the cost of the Georgia plant at $5 billion. The company expects the plant to create around 7,500 jobs by 2030.

According to the U.S. Department of Energy, the loan is expected to support Rivian in bringing 400,000 electric vehicles (EVs) to market, promoting broader EV adoption. The loan includes $6 billion in principal and $600 million in capitalized interest, Rivian confirmed on Monday.

This announcement comes less than two weeks after Rivian secured a $5.8 billion investment from German automaker Volkswagen as part of their technology joint venture. Canaccord Genuity analysts noted that this venture would help alleviate some of Rivian’s capital concerns and position the Rivian-VW partnership as a key contender in the Western EV market, alongside Tesla.

Challenges

Rivian is currently facing substantial losses per vehicle, with around $39,000 lost per unit sold last quarter, though management projects the company will reach positive gross margins in the near term.

The company continues to grapple with competition from established players like Tesla and newer entrants such as Lucid Motors, along with challenges in scaling production and managing capital costs.

Despite these positive developments, Rivian continues to face significant challenges, including scaling production, rising competition, high capital costs, and potential impacts from Trump’s plans to end EV tax credits for buyers.

In 2022, Rivian secured $1.5 billion in state and local incentives for the Georgia facility. In May, it also received a $827 million incentive package from Illinois to expand operations at its Normal facility.

Earlier this month, Rivian posted its first quarterly revenue decline since going public three years ago, citing a significant shortage of a key part used in its vehicles’ drive units. However, the company maintained its forecast to achieve its first gross profit in the current quarter, driven by cost reductions, renegotiated supplier contracts, revamped manufacturing processes, and a sharp rise in green car credits.

Valuation

Rivian is currently trading at a lower valuation compared to competitors like Tesla and Lucid, which may suggest significant upside potential if the company can achieve profitability and scale. Rivian trades at 2.2 times sales, while Tesla and Lucid are valued at much higher multiples, signaling potential for 200%-600% upside if Rivian's valuation aligns with its peers.

Conclusion

Rivian presents an attractive investment opportunity for aggressive growth investors, with the potential for substantial upside if the company successfully navigates its current challenges and achieves profitability. However, the stock is volatile, and investors should be prepared for the possibility of further setbacks if expectations are not met in the near term.