Investors just can't stop talking about Rivian (RIVN -2.21%). The electric vehicle maker made its blazing public debut in November, but can the company live up to its blistering valuation? In this segment of Backstage Pass, recorded on Nov. 10, Fool contributors Rachel Warren, Taylor Carmichael, and Connor Allen discuss.
10 stocks we like better than Rivian Automotive, Inc.
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Rivian Automotive, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of November 10, 2021
Rachel Warren: Electric vehicle start-up Rivian Automotive, made its widely anticipated public debut today at $106.75 per share. This was considerably up, the company had initially priced its IPO at $78 a share. Then the first hours of trading Rivian soared to a record $91 billion valuation, surpassing the valuations of General Motors or Ford.
The Company now trades under the ticker symbol RIVN. When the market closed, the stock was up nearly 30% from its debut price and the company had a market cap of about $86 billion. It's very common for electric vehicle makers to go public via SPAC, but Rivian actually held a traditional IPO.
No doubt about it, this was definitely an exciting entry to the market. It's been called one of the biggest IPOs of the year. Rivian, for anyone who isn't maybe familiar with this company, the company was founded in 2009.
Amazon owns a 20% stake in Rivian, Ford a 12% stake. It is worth noting that in Rivian's pre-IPO prospectus, the company said that it could lose in the ballpark of $1.3 billion in this quarter and could report as little as $0 in revenue.
My question is this, what do you think of Rivian as an investment? Would you buy this stock? If not, what's another stock you would buy instead? Taylor, what are your thoughts on this?
Taylor Carmichael: It's funny in our prep for this, I was negative on Rivian and I thought after I did it, [laughs] well maybe I was too mean and then Connor came in and was like five times meaner than me, and I'm like, [laughs] I guess I wasn't too mean then.
The nicest thing I can say is, there will be a cheaper price, so do not be in a hurry to buy this. There will be a cheaper price. I could be wrong. I feel there will be a cheaper price. I'm not sure where that noise is, do you all hear that noise?
Rachel Warren: I do. It sounds like a train, but I'm not sure. [laughs]
Connor Allen: That may be coming from me, I'm sorry.
Taylor Carmichael: No, I get trains over here too. [laughs] I'm in a spooky room. I unplugged my light for some stupid reason. [laughs] Because I want to run the lava lamp and now I have no light on my screen. I'm really sorry. [laughs] This is an extra special Halloween.
Rachel Warren: Yeah, perfect for the season, right?
Taylor Carmichael: Yeah, a little late. But OK. Rivian is scary to me. I look at it and I'm like, I feel like some billionaire decided, "Hey, let's pop this stock on the first day." They bought a bunch, but gosh, I mean they have no revenues. This is like the most expensive biotech stock ever. With nothing on the market, it's scary to me to look at that.
I don't think this is going to be Tesla 2. That's what you're hoping for, obviously, if you're buying this, that you're going to have another Tesla ride. There are all kinds of warning signs to this. You've got one major customer that's most of your sales, and you've got no other sales. I'm not even convinced there is a demand for this.
I was thinking about this the other day, I was like, people that drive pickup trucks are not necessarily your green people. It might be a whole different class of consumer that are not in a hurry to go electric. You think about who goes electric? I would think the people that go electric first are people that were driving small, environmentally conscious cars in the first place. If you're driving a pickup truck, you're probably not. I don't know.
That's, I guess, a very sloppy just off the back of my head thought, but I would wonder how much demand is there for an electric pickup truck? Are you sure that demand is there? I don't have a sense that it is there. I guess we'll see. But I definitely would wait until you see some revenue growth that impresses you before, it's going to be cheaper.
Rachel Warren: Yeah.
Connor Allen: Yeah. I agree with the niche market thing. It seems like they're going after not only truck users but granola truck users.
Rachel Warren: Oh man. [laughs]
Connor Allen: If you look at their advertisements on their S-1, that is what they are promoting for. It seems like that's such a small group of people out there.
Taylor Carmichael: You are limited to Oregon, basically. Maybe, I don't know.
Connor Allen: Taylor, you are right, my comments on Rivian are rather harsh. [laughs] I really do think that this is the most overvalued IPO in my investing career, which although short, this IPO seems absolutely crazy to me.
They got all the way up to $91 billion like Rachel was saying. They've got a deal with Amazon, so that's why they're worth $91 billion?
Come on. It seems crazy to me. They have $0 of material revenue to report, and they're already valued at what Tesla. To go back a little bit, so this is what people are trying to say, they're trying to say that this is Tesla 2.0.
Taylor Carmichael: Right.
Connor Allen: Okay, great. What is the path to become Tesla 2.0? That's what I don't know. This company comes public and it's valued at what Tesla was valued at in early 2020. In early 2020, Tesla was already selling hundreds of thousands of vehicles.
When you look at Tesla, what makes them so valuable is the potential of the company and they actually have a viable business behind the potential. I don't see any viable business behind Rivian, I see a very small addressable market, although they are trying to say their TAM is something ridiculous. I don't know. In my opinion, I would be very, very cautious or just stay away from this IPO.
Rachel Warren: I agree with both you, guys. I do think this seems really overvalued. I think you consider the serious losses and potential lack of revenue that Rivian is projecting just for this quarter alone. Yes, you could argue this is a newer company, it's growing fast, operating costs are high, but still, I think there's better investments in this area. If this is an area you'd want to invest in, Tesla is definitely an obvious option.
It was interesting because I saw this tweet by a writer at Fortune Magazine Lucinda Shen, and she said, "Rivian's IPO is the largest U.S. one since Facebook in 2012. But Facebook posted revenue of $3.7 billion in the year preceding its listing with income of $1 billion, Rivian posted no significant revenue and a loss of $1 billion in 2020. Investors today are a different breed."
It does beg this question of looking beyond the share price and looking at the business, and it definitely raises, I think, some very interesting questions.
Connor, like you mentioned, Rivian has this big deal with Amazon. Amazon has ordered, I checked on this, 100,000, I believe at last count, last-mile trucks by the year 2030. The first 10,000 are due this year, I believe.
But Rivian, yeah, they had a net loss of about $994 million in the first six months of 2021 alone, compared with a deficit of $377 million in 2020.
I think that if this is a company you are interested in, obviously it's one that catches the attention of a lot of investors understandably so, with such a hot IPO, I think if it's one you're going to invest in, maybe tread carefully, take a small position or consider, like Taylor and Connor were saying, perhaps waiting it out and seeing what happens with business before diving in because I do think shares will definitely go down in perhaps the months ahead.
