Is Rivian Stock a Buy After the IPO?

Rivian (RIVN 0.33%) recently went public, and to say that it is an expensive stock doesn't really tell the story. With a market cap of more than $102 billion, Rivian is one of the most highly valued automakers in the world, despite only having shipped a handful of vehicles. In this Fool Live video clip, recorded on Nov. 8, Fool.com contributors Danny Vena, Matt Frankel, and Jason Hall discuss whether the high price tag might be justified. 

Matt Frankel: A lot of people are excited about this, though I find it really interesting that all three of us ranked this No. 8 out of eight [recent IPO stocks]. Rivian is going public this week, I'll give you a quick overview then everybody can tell you why they ranked it so low. Rivian is going public this week, they are planning to sell 135 million shares of stock in a range of $72-$74, raising roughly $10 billion in the process, making it one of the biggest IPOs ever. This will give Rivian a valuation of roughly $65 billion, that's roughly the same as Ford (F -0.04%) and GM (GM -0.39%) in terms of automakers. Rivian is an electric vehicle company, they produce electric vans and trucks. Their R1T pickup truck was recently...

Jason Hall: They will be producing.

Frankel: No, they started producing in September.

Hall: They produced a few dozen. They made a few dozen, yeah.

Frankel: They made it clear that they will report positive revenue in Q3, they're not a pre-revenue company anymore. Jason's right, it's like dozens. It's not hundreds or thousands. But there are reasons to support this valuation, not necessarily that high valuation, but there's a lot of reasons to put value into this company. They have over 55,000 pre-orders for their pickup truck, Amazon (AMZN -1.05%) has committed to purchase 100,000 of their electric delivery vans by 2030, so that's a pretty long-tailed revenue stream.

But to put that in perspective, Ford has 160,000 orders for its electric F-150, their electric transit van has already sold out. These aren't gigantic numbers as they might seem in context of the auto industry. I personally ranked this as low as I did for valuation, I think $65 billion for a company that is doing something that a lot of American companies are already good at is a pretty big stretch. I'm a Lucid (LCID 2.58%) investor, which has a pretty high valuation itself. I think it's on par with that. But Lucid's doing something that a lot of companies are not doing that well, and Lucid's doing it a lot better. They have a big technology advantage over a lot of the passenger EV players. That's why I ranked it low. I'm curious to hear what you guys have to say.

Hall: Danny, go ahead.

Danny Vena: I actually was just looking at Rivian's IPO for the IPO Trailblazers service. Any company that, first of all, hasn't started trading yet. But also, we don't really know how it's going to go, so I rated it low. That said, I'm pretty impressed by the fact that Amazon has not only said that they're going to take 100,000 vehicles, but they said they took a 20% stake in Rivian. I think at the time it was more than a billion dollars that they spent on it, now it's worth more than three billion based on Amazon's latest regulatory filing. That's a huge vote of confidence from one of the most successful companies out there. While I very rarely buy IPOs within the first quarter or two, after they go public, this is one I'm definitely going to be watching.

Hall: The thing with me is, Matt, it's very much a valuation thing. We don't know exactly what's going to come, but I think they are looking the IPO of $60, $65 billion, that's the goal. You mentioned they're trying to do something that a lot of American companies do. They're trying to do something a lot of global companies do really well. I think people are underselling the amount of high-quality competition that there's going to be.

Danny, the Amazon thing was interesting to me as well, but there's something else that Amazon has done this year that also shows the approach that it's taking when it comes to its transportation fleet. It struck a big deal with Clean Energy Fuels (CLNE -1.73%), which is the company that supplies natural gas and renewable natural gas for transportation. It struck this deal for huge amount of natural gas to fuel its transportation fleet, renewable natural gas, and it has part of the deal as warrants that it has that will make it the largest shareholder in Clean Energy Fuels.

You think about companies like Amazon and other big companies that have massive logistics operations, they're looking at every way that they can get some predictable costs in their transportation, and also think about the carbon impacts of their transportation. They are looking at a lot of things. I think that also informs the fact the companies like Rivian are going to have competition in a lot of different places, not just in all of the EV space. I just can't wrap my head around buying what's essentially still a start-up. This is still a start-up, they're still basically pre-revenue. Start manufacturing a 100,000 cars a quarter, and then we can have a conversation about whether I think it's an investable company.