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What Tesla's Record Production Numbers Mean for Rivian and Lucid

By Daniel Foelber and Howard Smith – Jan 6, 2022 at 1:40AM

Key Points

  • Tesla's production and delivery numbers continue to shatter analyst expectations.
  • With a highly regarded product and a key investor and customer in Amazon, Rivian's path to profitability may already have a blueprint.
  • The EV industry is rife with potential, and companies like Lucid deserve high valuations.

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Tesla's better-than-expected results have ripple effects throughout the EV industry.

Tesla (TSLA 0.56%) kicked off the 2022 trading year by surging over 14% on Monday thanks to record-high quarterly and full-year production and delivery numbers. Since then, the Nasdaq Composite has turned negative year to date as growth and valuation concerns and a highly contagious omicron variant are rippling through markets.

Here's what Tesla's results mean for Rivian Automotive (RIVN 3.16%), Lucid Group (LCID 3.28%), and the electric vehicle (EV) industry as a whole.

A side view of a white Lucid Air Dream Edition parked in front of a building with palm trees.

Image source: Lucid Group.

Five years isn't that far away

Howard Smith (Rivian): It may seem premature to discuss EV deliveries of start-up Rivian and global leader Tesla in the same breath. While Tesla approached 1 million vehicle deliveries in 2021, Rivian is expected to report about 1,000. Additionally, Rivian reported a net loss of more than $1.2 billion in the third quarter of 2021, while Tesla earned $1.6 billion. With Tesla reporting blowout delivery results in its fourth quarter, investors may wonder why people are even talking about Rivian.

But Rivian is expanding its production capacity in its existing Illinois plant by 50,000 to 200,000 vehicles annually. And it already has announced plans for a second facility in Georgia that will have the ability to produce 400,000 EVs per year. It has preorders for more than 70,000 of its R1 platform trucks and SUVs, and a partnership with early investor Amazon (AMZN 0.01%) that includes an initial order for 100,000 electric delivery vehicles.

Five years ago, Tesla was producing nearly 25,000 vehicles per quarter. And in the first six months of 2017, it reported a net loss of nearly $800 million. Rivian had $5.2 billion in cash and equivalents on its balance sheet as of Sept. 30, 2021, and investors now need to look toward where it could be five years from now.

While it's unlikely Rivian will get to a 100,000 annual vehicle production volume rate in 2022, it already has the capacity to do so, and that pace could come in 2023. With Amazon's orders in hand, and the R1T pickup truck being awarded the 2022 MotorTrend Truck of the Year award last month, Rivian should have the demand to ramp up production accordingly. Investors can look to Tesla's 2021 results to see a possible blueprint for where Rivian could be as a company five or six years from now.

That doesn't mean the share price will follow the same path. Tesla was valued at about $35 billion in early 2017, while Rivian already has a market cap of more than $90 billion. But long-term investors can look to Tesla's business path to potentially see how Rivian will evolve. If it executes successfully, it will grow into its valuation with time. 

A mature market that deserves a higher valuation

Daniel Foelber (Lucid): Howard makes a good point that Tesla had a lower market cap in 2017 than Rivian has today. Lucid's current market cap is $60 billion, which is certainly high for a company with negligible 2021 revenue and production numbers.

The valuation disparity is one reason why Rivian and Lucid receive their fair share of criticism. However, this dynamic exists in almost every fast-moving industry. Today's e-commerce leaders, software companies, and renewable energy stocks sport much higher valuations than in years past because their industries are stronger than they used to be. For example, an industry leader like Shopify has a market cap over $150 billion despite only reporting its first meaningful year of profit last year. Yet there are reasons to suggest it's a great buy because of its growth rate and ability to capture more market share as the industry grows in the decades to come.

Even Tesla can't be compared to its former self. Tesla stock now has a price-to-sales (P/S) ratio of 27.6, around the highest in the last five years. But with Tesla generating record high free cash flow, sporting the highest operating margin in the auto industry, growing at a breakneck pace, and beginning production at its new gigafactories in Germany and Texas this year, it arguably deserves to be a more expensive stock.

When zooming out and looking at the auto industry as a whole, it's clear to see that the transition from the internal combustion engine to the electric motor is accelerating. Legacy automakers are investing heavily to diversify and not get left behind. Pick-and-shovel plays like charging companies are growing quickly to build the infrastructure that will underpin the future of transportation. For Lucid, Tesla's record production numbers are a sign that demand for EVs is stronger than ever. That should encourage the company to spend the needed money to scale its manufacturing capacity, service centers, and showrooms, knowing that it can raise more cash if needed.

In fact, Lucid was able to raise $1.75 billion from a convertible senior note offering. The initial conversion rate translated to $54.78 per Lucid share, a 46% premium to the price of Lucid stock at the time of this writing. Lucid now has over $6 billion in cash, setting the stage for what should be an exciting 2022.

The EV market is healthier than ever

Rivian and Lucid indirectly benefit from factors that add strength to the EV market. These inputs could come from favorable federal policy, tax credits, or in this case, the industry leader showing that it's in the best shape of its life. Rivian and Lucid have a lot to prove in 2022, but Tesla's record performance bodes well for the health of the electric car industry.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Foelber has no position in any of the stocks mentioned. Howard Smith owns Amazon and Lucid Group, Inc. The Motley Fool owns and recommends Amazon and Tesla. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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