Rivian Automotive (RIVN +3.22%) became one of the hottest growth stocks upon its market debut on Nov. 9, 2021. The electric vehicle maker priced its IPO at $78, and its stock rallied to its all-time high of $172 a week later.
Unlike many smaller EV makers that were still struggling to ramp up their production, Rivian had already started producing and delivering its vehicles. Amazon and Ford Motor were also two of its top investors, and the former had already placed a multi-year order for 100,000 of its electric delivery vans (EDVs).
Those two facts drove a stampede of bulls to Rivian, and its gains were amplified by the buying frenzy in meme and growth stocks that peaked in late 2021.
Image source: Rivian.
At its peak, Rivian's enterprise value reached $151 billion -- or 91 times the revenue it would generate in 2022. But rising interest rates popped that bubbly valuation, and a series of supply chain disruptions, delays, and recalls exacerbated that pressure. All of those setbacks caused many of Rivian's biggest bulls -- including Ford -- to dump their shares.
That's why Rivian now trades at about $15 with an enterprise value of $6 billion -- a mere 1.5 times the revenue it's expected to generate this year. Is Rivian becoming an undervalued growth play at these levels, or is it too late to bet on its recovery?
NASDAQ: RIVN
Key Data Points
Why did the market turn against Rivian?
Rivian produces three types of vehicles: the R1T pickup truck, the R1S SUV, and the Amazon EDV. In 2021, it produced 1,015 vehicles, delivered 920 of them, and said it had "sufficient parts and materials to produce 25,000 vehicles" in 2022. Yet, Rivian only produced 24,337 vehicles and delivered 20,332 of them in 2022. It generated $1.66 billion in revenue, but it racked up a net loss of $6.75 billion. It also pushed back the first deliveries of its R1S SUV from mid-2021 to late 2022.
Rivian attributed most of that slowdown to supply chain constraints. At the end of 2022, it predicted it could more than double its annual production to 50,000 vehicles in 2023, but that forecast broadly missed analysts' expectations for 62,000 vehicles. It only produced 9,395 vehicles and delivered 7,946 of them in the first quarter of 2023 -- so it needs to significantly ramp up its production over the next three quarters to hit its target of 50,000 vehicles.
For the full year, analysts expect Rivian to more than double its revenue to $4.03 billion as it narrows its net loss to $5.63 billion. Unfortunately, its slowing growth and red ink drove the bulls to shun Rivian as interest rates rose over the past year.
But it's not all bad news...
But on the bright side, Rivian won't go bankrupt anytime soon. It raised $1.3 billion in a convertible notes offering earlier this year, and it ended the first quarter of 2023 with $12 billion in cash, cash equivalents, and restricted cash. Its low debt-to-equity ratio of 0.4 also gives it plenty of room to raise more capital.
Another bullish sign is Amazon's commitment to Rivian. Amazon's equity stake in Rivian caused it to post a steep net loss last year, yet it refuses to follow Ford's lead and sell its shares. Rivian initially planned to deliver 100,000 EDVs to Amazon by 2025, but the two companies agreed to extend that deadline to 2030 last year. Those developments suggest that Amazon remains confident in Rivian's ability to scale up its operations.
Those plans include Rivian's expansion of its Illinois plant this year, which will boost its annual production capacity from 150,000 to 200,000 vehicles, and the opening of its Georgia plant in 2024, which will boost its annual production capacity to 600,000 vehicles. It will also launch its 400-mile "max pack" batteries for the R1S and R1T in the second half of 2023, followed by its third R1 vehicle, the R1X SUV, in late 2023. It plans to produce over a million vehicles annually by 2030.
Is it too late to buy Rivian?
Rivian was overvalued in late 2021, but it now seems undervalued with an enterprise value of just 1.5 times this year's sales. Lucid, which faces similar headwinds but has a lot of support from Saudi Arabian investors, trades at 12 times this year's sales. Tesla, the bellwether of the EV market, trades at eight times this year's sales.
Therefore, I don't think it's too late to buy Rivian's stock as long as you believe it can gradually scale up its business. It's burned a lot of bulls since its debut, but it could be a great buying opportunity right now at an 80% discount to its IPO price.
