The public debut of Rivian Automotive (RIVN -2.21%) was one of the most anticipated of any electric vehicle company last year. Its initial public offering (IPO) didn't disappoint, as investors bid shares high enough to give the start-up company a valuation of over $150 billion.
Much has happened in the seven months since that time. Rivian built a large reservation base for its vehicles, and it began production and made its first sales. The stock has also retreated to the level where its market cap is now below $30 billion. That makes now a great time to see if Rivian stock is a buy.
Image source: Rivian Automotive.
A solid base
One advantage Rivian has is a solid and diverse base of customer interest and orders. In addition to more than 90,000 preorders for its R1 platform pickup truck and SUV models as of May 9, 2022, the company has an initial order from Amazon (AMZN -1.64%) for another 100,000 of its electric delivery vehicles (EDVs). Rivian has produced about 5,000 total vehicles since it initiated production, and expects to manufacture a total of 25,000 in 2022.
Supply chain disruptions forced the company to limit its production total this year. It has the equipment and processes in place to produce twice the expected volume. But the 2,553 vehicles produced in the first quarter are comparable to the full-year deliveries from EV leader Tesla (TSLA 12.06%) a decade ago. And Rivian's anticipated production for this year is reminiscent of what Tesla delivered in 2013.
Rivian's production level could be compared to where Tesla was in 2013.
Is the stock a good value?
For perspective, Tesla was valued with a market cap of about $20 billion at the end of 2013. As most investors know, that ballooned to more than $1 trillion before a subsequent decline. The big question, of course, is whether Rivian stock can follow that same path now that its valuation has plunged from about $100 billion in just the last six months.
Rivian was valued at nearlly $100 billion just about six months ago.
Every young company is going to face headwinds and growing pains, and Rivian is facing some now. Along with the previously mentioned supply chain constraints, the company is dealing with rising raw material costs, and is currently in a related dispute with a seat supplier, according to The Wall Street Journal.
The report said Rivian sued the supplier after it nearly doubled a previously agreed-upon price. The dispute may impact production of its EDVs for Amazon. For its part, Rivian previously also tried to raise prices for its R1 platform trucks, only to face a backlash from customers that held reservations made at the original price. Rivian subsequently said it would honor all prices that existed when those reservations were made. But that also means Rivian will absorb rising costs for those sales.
Will it get there?
One advantage Rivian does have is a large cash pile. Tesla CEO Elon Musk has said that his company was within about a month from bankruptcy when it was ramping up its Model 3 mass production in 2017. But Rivian was sitting on $17 billion in cash, cash equivalents, and restricted cash as of March 31, 2022.
It also has plans for a second production facility in Georgia, and has been granted incentives by the state valued at $1.5 billion, including tax breaks. The combined annual production capacity from both its existing facility and the future Georgia plant would be 600,000 vehicles.
There are reasons to think Rivian could ultimately become a hugely successful business. But an investor would have to enter with the right perspective knowing there's no guarantee that it will succeed. And the money would likely be tied up for years as the company matures. But as a long-term investment in Tesla has previously shown, it could be worth the wait.
