It would be an understatement to say Rivian Automotive (RIVN 0.20%) got off to a rocky start since its Nov. 10 initial public offering. Priced at $78 per share, the upstart electric vehicle maker is already down 23%, and is sitting 67% below the high point it reached days after going public.
To think it could earn a trillion-dollar valuation seems almost absurd at this point, but it took Tesla (TSLA -1.74%) more than a decade to finally cross over that threshold, so never say never. Electric cars are achieving a critical mass today, unlike back in 2010, so to say Rivian can't be worth $1 trillion in 10 years' time is saying too much.
That doesn't mean it will be, just that it could be. So let's see if the EV truck maker has what it takes to become a trillion-dollar investment.
Image source: Getty Images.
Swinging for the fences
Backed by the likes of Amazon.com (AMZN -0.40%) and Ford (F -0.16%), the maker of the R1T electric truck and soon-to-be-offered R1S SUV has a noteworthy pedigree. The e-commerce giant owns about 19% of the company, the old-line automaker with EV aspirations of its own owns approximately 12%.
Unlike Tesla, which focuses on sedans and crossover SUVs (and maybe a butt-ugly truck if it can ever get the Cybertruck out from behind production delays), Rivian is targeting the big vehicle market of pickups, SUVs, and commercial vans. It's chosen the arrows in its quiver well.
Trucks and SUVs are popular, big-selling vehicles that carry the highest profit margins. Ford, of course, is the perennial winner in that category with its F-series pickup trucks. For 40 consecutive years it has been the top-selling vehicle in America, and it has been the best-selling pickup truck for 45 straight years.
Ford is hoping to replicate that track record with its own all-electric pickup truck, the F-150 Lightning. It received 200,000 reservations for the new truck at the beginning of December, and stopped taking on any more so it could concentrate on production. How many it will actually make remains unknown, but it has said it hopes to build 80,000 Lightnings in 2023.
Rivian started delivering its R1T late last year, and while it was only a relative handful of units rolling off the assembly line -- it ended 2021 having produced 1,015 vehicles, shy of its 1,200 vehicle target -- Bloomberg just reported it was quadrupling production from 50 vehicles a week to 200 vehicles.
Image source: Rivian.
Banking on growing demand
As noted earlier, Rivian isn't just targeting the pickup truck market, but also SUVs and delivery vans, for which it has an order for some 100,000 or so vans from Amazon. It plans to deliver the first 10,000 this year and another 100,000 by 2030.
It has planned capacity of around 200,000 vehicles at its Normal, Illinois plant, and an estimated annual capacity of twice that at its Georgia facility, giving it the capability of producing all the vehicles it needs to match demand. The Georgia plant is expected to begin producing vehicles at the beginning of 2024.
To help achieve its production goals going forward, Rivian has said it will prioritize growth over profitability, which is just as well since it reported a $1.2 billion net loss in the third quarter. Even adjusted for one-time items, earnings before interest, taxes, depreciation, and amortization came in at a loss of $727 million, two-and-a-half times greater than the $289 million loss a year ago.
Some of that is obviously a result of ramping up production. Going from "concept stock" to production company is going to entail costs, and they've been elevated in recent periods as inflation keeps rising -- but investors should expect losses to be a fact of life for some time to come. Heck, even Tesla only became consistently profitable about two years or so ago.
Image source: Rivian.
Avoiding potholes will be key
Still, it's not all open roads for Rivian. Amazon, for example, reserved the right to secure its electric delivery vans from other manufacturers, such as Daimler and Stellantis (STLA -1.56%), suggesting even its biggest backer may have doubts about it fulfilling its obligations.
Also, while the supply chain issues we are still suffering from will undoubtedly be resolved well before 2030, they are still impacting the automaker now, and explain why Rivian came up short on its 2021 production target. Labor shortages could also be a problem, and the confluence of these events could create delays that cause backlogs in production and pressure its stock. That could make it more difficult to reach trillion-dollar status.
So can Rivian do it? I think it's possible. Because there is a push for greater numbers of EVs to be on the road and Rivian is targeting the meatiest part of the market, its chances for success are pretty good. It doesn't have to overcome doubts about whether electric cars are a viable alternative like Tesla did, and EV manufacturers tend to carry valuations more akin to those of tech stocks than to old line automakers.
Rivian has been cut down to a $50 billion market cap now, but by 2032, this EV truck maker could be a trillion-dollar baby.
