Move over Tesla, here comes another company you can love or hate but cannot simply ignore. Having delivered less than 200 vehicles so far, Rivian Automotive (RIVN -1.91%) sports a market capitalization of roughly $100 billion. As has been widely covered in the media, the company's market cap exceeds that of General Motors or Ford Motor Company (F 0.65%). Let's take a closer look at the electric vehicle (EV) start-up to find if it is a buy right now.
Why investors are excited about Rivian
Founded in 2009, Rivian entered the EV market with a five-passenger pickup truck, R1T, and started deliveries in September this year. Rivian has beaten every other company in launching an all-electric pick-up truck, and that's one reason behind investors' enthusiasm. As of Oct. 31, Rivian has delivered 156 R1Ts. The model's price starts at $67,500.
In December, Rivian plans to launch its next model, the R1S, a seven-passenger SUV. The R1S starts at $70,000. By the end of 2021, the company plans to deliver around 1,000 R1Ts and 15 R1Ss.
Although Rivian is the first to launch an electric pickup truck, it won't be alone in this market for long. After Rivian, General Motors could be the next to come up with an electric pickup -- a Hummer -- which it plans to launch in December. Meanwhile, the launch of Tesla's Cybertruck has been delayed until next year. Ford and Lordstown Motors are also planning to launch electric pickup trucks in 2022.
The competition in the segment is surely heating up. After Rivian's stock's spectacular rise following its initial public offering, concerns relating to potential competition seem to be weighing down the stock.
The Amazon partnership
The second reason that got investors excited about Rivian is its partnership with Amazon (AMZN -1.21%). Under this, Rivian will deliver 100,000 electric delivery vans to Amazon through 2030, which is the largest order of EVs ever. Rivian intends to start deliveries of the vans this year and expects to deliver 10 vans in 2021.
Notably, Amazon Web Services (AWS) owns more than 5% of Rivian's capital stock. Moreover, Rivian purchases various cloud computing services from AWS. Rivian has also issued to Amazon 3.7 million shares of preferred stock, convertible into an equivalent number of common shares, at an exercise price of nearly $9.10.
Rivian may not generate a huge (or even positive) margin under this agreement, which is likely tightly negotiated on the pricing front. However, the company will gain rich experience of managing one of the largest centrally managed EV fleet in the world. The Amazon partnership should help Rivian establish itself in the electric commercial vehicle market.
The Ford partnership
Ford invested $500 million in 2019 in Rivian and partnered with the EV start-up to develop EVs jointly. The two companies, however, ended their partnership in November, days after the Rivian IPO. The companies now plan to advance their own EVs separately. Ford retains its roughly 12% stake in Rivian.
The development may not be earth-shattering for Rivian, as it now plans to manufacture on its own the parts that Ford was supplying. However, it adds an extra layer of uncertainty, albeit thin, in Rivian's delivery plans. Obviously, investors didn't like the development, which partly contributed to the stock's recent fall.
Should you buy Rivian stock now?
Although Rivian stock has fallen significantly from its high over $170, it is still valued loftily. Rivian doesn't really have a head start, with so many competitive offerings lined up in the coming months. How Rivian's pickup trucks will differentiate from upcoming competing models isn't clear yet. In the absence of differentiation, it might be difficult for Rivian to carve a place for itself in the competitive EV space.
Like Tesla, Rivian plans to develop its own charging infrastructure. But that alone may not be enough to succeed. All in all, Rivian faces too many uncertainties and risks. The company will have to prove a lot to grow into the massive valuation of its stock. EV investors may find better options elsewhere.