Rivian Automotive's (RIVN 2.82%) stock closed at a record high of $172.01 on Nov. 16, 2021. That equaled a 120% jump from its IPO price of $78 in just a week and boosted the electric vehicle (EV) maker's market capitalization to $153 billion.
But today, Rivian's stock trades at about $11, with a market capitalization of $11 billion. Like many other EV manufacturers, it struggled with supply chain constraints, soaring costs, and persistent losses. The EV market also cooled off and rising interest rates compressed its valuation. But could this struggling EV maker become a $100 billion company again by 2035?
Image source: Rivian.
Why did Rivian's stock drop so far below its IPO price?
Rivian manufactures electric pickups and SUVs, as well as custom electric delivery vans for its top investor, Amazon. When it went public, it claimed it could produce 50,000 vehicles in 2022. But it eventually halved that forecast to 25,000 vehicles and slightly missed that target by only producing 24,337 vehicles for the year. Those setbacks caused Ford Motor Company to liquidate most of its Rivian shares throughout 2022.
In 2023, Rivian's supply chain constraints eased and it produced 57,232 vehicles. But for 2024, it plans to only make about 57,000 vehicles as it grapples with tougher macro headwinds, fierce competition from other EV manufacturers, and a planned shutdown of its main plant for "several weeks" in the second quarter to streamline its production, roll out new technologies, and lay off about 10% of its workforce to rein in its operating expenses.
As Rivian's production slows down, it's been reducing the prices of its base R1T and R1S models to attract more customers in a sluggish EV market. All of those obstacles could make it difficult for the company to achieve its goal of generating a positive gross margin by the fourth quarter of 2024, which it plans to accomplish by reducing its raw material costs and ramping up the production of its in-house Enduro drive unit.
Will Rivian stabilize its business over the next few years?
In 2023, Rivian generated $4.43 billion in revenue by delivering 50,122 vehicles, and it slightly narrowed its operating loss from $6.86 billion to $5.74 billion. For 2024, analysts expect its revenue to rise 10% to $4.87 billion as it narrows its operating loss to $4.76 billion.
Rivian ended 2023 with just $10.47 billion in total liquidity, which includes its cash, cash equivalents, short-term investments, and its revolving credit facility. However, it generated negative free cash flow (FCF) of $5.89 billion in 2023, and analysts expect it to post negative FCF of $4.36 billion in 2024. In other words, it could burn through half of its remaining liquidity this year as it struggles to produce more vehicles.
But looking further ahead, Rivian plans to expand its production capacity and roll out its new R2, R3, and R3X vehicles over the next three years. The R2 is a cheaper SUV that should commence production in late 2026, while the R3 and R3X are sportier models that will likely arrive in late 2026 or early 2027. Rivian is also still committed to delivering 100,000 electric delivery vans to Amazon by 2030.
By 2025, analysts expect Rivian to generate $12.2 billion in revenue -- which would represent an impressive compound annual growth rate (CAGR) of 40% from 2023 -- as it narrows its annual operating loss to $2.6 billion. We should take those estimates with a grain of salt, but they imply that economies of scale will kick in as it overcomes its supply chain constraints.
How much could Rivian be worth by 2035?
That's a pretty high long-term growth rate for a stock that trades at just 2 times this year's sales. By comparison, Tesla shares change hands for 5 times this year's sales. Looking back, Tesla generated $11.8 billion in revenue back in 2017 -- and subsequently increased its top line at a CAGR of 42% over the following six years.
If Rivian matches analysts' expectations through 2025 and continues to boost its top line at a CAGR of 40% from 2025 to 2035, it could generate $350 billion in revenue by the final year. If it's still trading at 2 times sales, it could be worth more than $700 billion. But maintaining a 10-year CAGR of 40% in a maturing market won't be an easy task.
If we dial that CAGR down to 20%, Rivian could still generate $75 billion in revenue by 2035. If it's trading at 2 times sales by then, it will reach a market cap of $150 billion, which would nearly match its all-time high set in November 2021. But if the bulls warm up to Rivian again and revalue it at 4 times sales, its market cap could reach $300 billion.
Simply put, Rivian's market cap could easily top $100 billion again by 2035. Nevertheless, investors should be cautious because it still needs to endure some tough trials over the next few years as it scales up its business.
