Investors had been focused on electric vehicle (EV) start-up Rivian Automotive (RIVN -3.34%) even prior to its public debut. The company raised an astounding $13.7 billion through its initial public offering last November, and the public markets bought in from there. The stock's market cap peaked at more than $150 billion just days after it started trading.
But in the months since, Rivian's market cap has fallen to roughly $26 billion. Investors have been eagerly awaiting updates on the company's long-term plans, and they got some this week in the company's first annual letter to shareholders. There are several takeaways worth looking at from the update -- and they should give investors at least some pause.
Image source: Rivian Automotive.
Not reinventing the wheel
Rivian told shareholders it wants to ensure the $17 billion cash pile it held as of March 31 would support it through 2025, when it expects to launch and ramp up production of its second EV platform, the R2 midsize SUV. This year, the company expects to produce 25,000 vehicles -- that includes its R1 platform trucks as well as electric delivery vans (EDVs) for Amazon -- and it says it has more than 90,000 reservations for its R1 trucks in addition to Amazon's order of 100,000 EDVs.
Every EV investor would love to find the next Tesla, and a look back at Tesla's road to success can help provide some insight into the path Rivian and its stock might take. Start with Rivian's roadmap, which is similar to how the EV trailblazer grew its business and product portfolio. Rivian's production expectations for this year are similar to the volumes Tesla produced in 2013 and 2014.
Tesla expanded to its second vehicle platform with its Model 3 and Model Y.
And Rivian's plan is analogous to how Tesla started with its Model S and Model X platforms before launching its second platform Model 3 and Model Y. The Model 3 began limited production in mid-2017, with the first one rolling off the assembly line in July of that year.
But an investment made in Tesla at the end of 2014 only increased by 40% over the subsequent three years. That roughly matched the total returns of the much lower-risk S&P 500 index over that same period. An investment in Tesla made in 2014 worked out extremely well if held for many years. But the risk at that stage of development was high, and there were also opportunity costs in the years when Tesla didn't outpace the lower-risk index.
The similarities end there
The EV landscape has also changed. In Rivian's shareholder letter, CEO R.J. Scaringe noted that the next decade of growth for the EV sector will rely heavily on the battery supply chain. Scaringe said its business will have to navigate this, "with the need for battery production capacity in the world to expand by more than 20 times during this time."
That adds another element of risk to an investment in Rivian. And while the EV market is expected to grow substantially over that decade, even a successful producer will have more competition to contend with as well.
Tesla didn't have to fight for a limited battery supply as it ramped up its production volume. Nor did it have to fight for market share. But with several traditional automotive manufacturers beginning the transition to focus on electric vehicles, as well as a host of other start-up companies offering new products, Rivian's path will be different.
The takeaway for investors is that the risks shouldn't be overlooked. And while Rivian seems to be funded sufficiently for the next three years, investors don't need to pour significant capital of their own into the stock right now. After all, as Tesla has shown, even a small investment could pay off handsomely in the long run.
