EV (electric vehicle) startup Rivian went public on Nov. 10 and trades under the ticker symbol “RIVN.” The stock soared on the listing even though many analysts are still trying to make sense of the valuation. How high can RIVN stock go and what’s the long-term forecast for the company? Also, what are the risks that Rivian investors should watch out for?
Rivian raised almost $12 billion from the IPO, which makes it not only the biggest IPO globally in 2021 but the largest U.S. IPO since Facebook’s debut in 2014. The company will use the funds to accelerate production. Also, the IPO will provide the company with a war chest to take on other EV companies—most of which are cash-rich after multiple rounds of capital raise over the last year.
RIVN’s long-term forecast
The long-term forecast for RIVN stock looks positive based on the global pivot towards electric cars. After a brief lull, we’ve seen increased optimism towards EV stocks and Tesla’s market cap has swelled above $1 trillion. Demand shouldn't be a concern for Rivian, just like other EV companies.
The company will start deliveries for its R1T pickup next year and plans to begin the deliveries of the pickup van to Amazon in 2021. Amazon, which holds a fifth of the stake in RIVN, placed an order for 100,000 vans from the company. Next year, Rivian will start taking orders from other fleet customers also and will begin delivering them vans from 2023 onwards.
Is Rivian stock overvalued?
Rivian’s market cap is almost $85 billion, which is just below General Motors—the largest U.S.-based automaker. Rivian hasn't made meaningful sales and has only delivered a few cars to employees.
Now, there isn't any way to justify Rivian's valuations by comparing it with legacy automakers, just like we can’t justify Tesla’s $1 trillion valuation. However, the pivot towards green energy and autonomous cars is the biggest transformation in a lifetime and investors have been willing to pay a premium.
What risks does Rivian face?
There are several risks that Rivian investors should watch out for considering its rich valuations. First, rising inflation could force the Fed to act quickly on the tightening. This could lead to a sell-off in growth names, including RIVN.
On a more EV industry level, Rivian will face tough competition, which is coming from all sides in the EV industry. Pure-play EV companies are ramping production and legacy automakers are also targeting the market in a big way. The companies are launching electric versions of their best-selling models. We’ll also have models from startup EV companies like Fisker over the next few years.
Product differentiation would be the key for EV companies over the next few years since the market looks set to become overcrowded. Also, rising competition would mean pricing pressure. Cash-rich EV companies would scramble for market share.
Another risk could be a fall in Tesla stock. As noted in the past, a fall in Tesla often leads to a crash in other EV names. Looking at the derivative valuation model in the EV industry, the fall in Tesla reflects in the price action of other EV names also.
Finally, on a company-specific level, Rivian wouldn't have any room for error on the execution part. Markets have given a premium to startup EV companies like Lucid Motors and Rivian on their execution capabilities. Even the slightest hint of faltering on execution could lead to a sell-off in RIVN stock.
How high can Rivian stock go?
Rivian stock was trading higher on Nov. 12 since the euphoria is far from over. An additional rise would take RIVN's market cap to $100 billion. It's hard to think of any other pre-revenue company commanding a market cap of $100 billion. Looking at the already stretched valuations, the stock might not go much higher from these levels.