Is Rivian a Good Investment? Projection and Tesla Comparison

The EV (electric vehicle) market sentiments have improved significantly over the last month. Several EV companies are also trying to capitalize on the momentum in EV stocks. Sono Motors and Rivian have filed for an IPO and are expected to list soon. Is Rivian a good investment or should you go for Tesla instead, whose market cap recently crossed above $1 trillion?

Rivian is the largest EV IPO of 2021. Lucid Motors is the other major EV company that went public this year, but the Peter Rawlinson-led company choose a SPAC merger instead of a traditional IPO. Volvo-backed Polestar is also going public through a SPAC reverse merger.

Rivian looks like a good investment based on the positive outlook for EVs. The company has the backing of Amazon and Ford, which would bring captive demand and expertise, respectively. Currently, Rivian is taking orders for the pickup model R1T. The model has a 400-mile range and deliveries are expected in January 2021. The second model is the R1S SUV.

The company also has a delivery van under its fold for which it has an order of 100,000 vans from Amazon. Rivian expects to begin the deliveries to Amazon in 2021 and complete the order by 2024. However, in early 2022, Rivian will start accepting fleet orders for the delivery vans, named RCV, from other buyers too. The RCV deliveries for these buyers would start in 2023.

While a massive order book, good product proposition, and backing from strategic investors are a plus for Rivian, its valuations might appear stretched to a section of the market. However, the company’s valuations should be seen in the context of other EV names, both established companies as well as startup players.

In the IPO, Rivian is seeking a $65 billion valuation, which is slightly below that of Lucid Motors. Lucid Motors stock has surged over the last month as the company started the deliveries of its Air sedan. Markets have been willing to pay a premium for EV companies that execute well.

Tesla has a market cap of more than $1 trillion. If we compare Rivian’s valuation with that of other EV companies, it doesn't look unreasonably high. However, the stock might appear overvalued compared to legacy automakers. For example, Ford has a market cap of less than $80 billion despite the stock having more than doubled in 2021.

Rivian is backed by Amazon, whose founder Jeff Bezos and Tesla CEO Elon Musk have a strained relationship. There's some portfolio overlap between the two companies. While Rivian’s SUV would compete with Tesla’s Model X, its pickup would compete with Tesla’s upcoming pickup Cybertruck.

Incidentally, Tesla has pushed back the delivery timeline for Cybertruck to the end of 2022 amid supply chain issues.

The all-electric Ford F-150 will hit the road in the spring of 2022. The current avatar of the F-150 has been North America’s best-selling pick-up for decades and retaining its market share in the market will be crucial for Ford.

If markets are correctly valuing Tesla as a $1 trillion company, Rivian would appear reasonably valued with a $65 billion valuation. However, the price tag leaves little on the table for investors who buy the stock in the IPO.

The projection for Rivian stock post listing would depend on how Tesla stock fares. Generally, Tesla's price action drives the price movement for other EV names as well. Also, Rivian would need to be foolproof with its execution since there's little scope for error at this price point.