Electric vehicle start-up stocks seem to be following the same playbook over and over with investors. Tesla has had a decade-long head start forging a path for EV companies, but its success has led to investors wanting to find the next Tesla in names like Rivian Automotive (RIVN 0.27%) or Lucid Group.
In their early trading lives as public companies, the stocks of these start-ups spiked to unreasonable levels. But with the initial surge in Rivian stock having settled back down, investors can look closer at its business model and see it has a unique position and plan in the EV sector.
Filling a niche
Rivian isn't necessarily looking to take on Tesla directly. Its more than 83,000 preorders are for the R1 platform vehicles that include an electric pickup truck and an SUV. Separately, Amazon has ordered up to 100,000 Rivian electric delivery trucks after the e-commerce giant became a large shareholder in the company from early investments prior to Rivian's IPO last year.
Those products should have plenty of demand, and as the following chart shows, they are not yet a large part of EV offerings in the U.S. Rivian's R1T pickup has also won accolades by being named MotorTrend's 2022 Truck of the Year.
Having a partner in Amazon is also a strength that Rivian can exploit. Amazon's Climate Pledge agreement commits it to achieving net-zero carbon emissions by 2040. It expects to have all 100,000 Rivian delivery trucks on the road by 2030. That's because data shows EVs will continue to drastically cut greenhouse gas emissions, as demonstrated below.
A realistic buy price
An investment in Rivian is aggressive and full of risk. The company recently acknowledged it will have to absorb rising raw material costs, and it had to scale back its near-term production plans due to supply chain shortages. The execution risk is real, and there is also a real chance the company could fail.
But for those willing to take the risk based on the potentially huge, long-term market, Rivian's valuation has given investors an opportunity. As the share price has been cut in half so far in 2022, Rivian's market cap has dropped from about $100 billion to around $45 billion at its recent share price.
With manufacturing in its initial stages and the company only expecting to produce 25,000 vehicles in 2022, that valuation will still take plenty of time to justify. And profitability will be a long way off. Rivian plans to spend $2.6 billion in capital spending in 2022, so it remains squarely in start-up growth mode.
Recipe for success
Rivian ended 2021 with $18.4 billion in cash, cash equivalents, and restricted cash, however. That gives it plenty of capital to grow its existing facility to a rated annual capacity of 200,000 vehicles, as well as follow through on a planned $5 billion project for a second factory in Georgia.
With its capital, existing customer base in Amazon, and niche electric truck products, the company has a recipe for success. Indeed, Rivian was just named one of Time's 100 most influential companies for 2022. The publication names it as one of its top innovators. Like any recipe, success of the final product will be determined by the execution. But Rivian investors may want to take that risk, given the potential rewards that could accompany that success.