Rivian Automotive, Inc. (NASDAQ: RIVN) is experiencing the growing pains of virtually all upstart manufacturing companies. Manufacturing plans and production schedules generally zig zag through fits and starts at the outset before eventually settling into a more predictable pattern.
The difference between Rivian and most such manufacturers in their earliest stages is that Rivian has a stock market capitalization of US$88 billion, and investors are increasingly questioning whether such a valuation is sustainable for a company, however promising its future, which has recorded US$1 million in aggregate revenue.
On December 28, electrek.co reported that buyers which ordered Rivian’s R1T electric pickup trucks and R1S electric SUVs outfitted with bigger, longer-lasting battery packs will have to wait until 2023 for delivery of the vehicles with the premium power source. This comes on the heels of the company’s December 16 disclosure that it expects to produce “a few hundred” fewer R1Ts in 2021 than the 1,200-unit goal it articulated in late October 2021. Through December 15, 2021, Rivian produced 650 R1Ts and 2 R1S’s.
According to an email to customers presumably written by Rivian CEO RJ Scaringe, about 20% of the company’s cumulative 71,000 aggregate pre-orders in the U.S. and Canada for its R1T and R1S vehicles specified inclusion of the 180 kilowatt-hour Max pack battery. Many of these preorders trace back to 2018 and 2019. The Max pack option, which carries a US$10,000 additional price, pushes the driving range of the vehicles to 400 miles from 314 to 316 miles. Reservations require a deposit of US$1,000, which is fully cancelable and fully refundable.
In order to deliver as many total units as quickly as possible, Rivian is prioritizing the manufacture of R1Ts/R1S’s with conventional battery packs which presumably can be completed more easily. Customers who ordered the ~14,200 vehicles (20% times 71,000) with premium battery packs will be given the option to change their requested battery configuration and therefore possibly receive their vehicles some time before 2023.
It is of course unclear how many of Rivian’s premium customers will remain patient and wait until 2023 or switch to a vehicle with a less powerful battery. The financial implications of this prospective decision are significant: if half of the 14,200 customers were to decide to switch to, say, a Tesla SUV, the new GM Hummer electric truck, or the new Ford F-150 Lighting electric pickup truck, Rivian would lose at least US$500 million of future revenue (7,100 lost customers times a base vehicle price of around US$70,000).
In approximately two years, Rivian hopes that it can attain aggregate weekly production levels of around 3,000 R1Ts, R1S’s and electric delivery vans (primarily to fill Amazon’s order) at its Normal, Illinois manufacturing plant. If it can achieve that ambitious goal, the company’s annualized revenue at that time would be around US$10.5 billion.
Rivian reported negligible revenue and an enormous operating loss and operating cash flow deficit in 3Q 2021. Specifically, the company posted revenue of US$1 million, a US$776 million operating loss, and a US$685 million adjusted EBITDA deficit in the quarter. Quarterly losses are expected to remain very high for many quarters as the company begins the initial production runs of its vehicles.
Given the prospect of many future quarters of losses plus the production uncertainties noted above, it is hard not to conclude that Rivian’s US$88 billion stock market valuation looks awfully full.
| (in millions of U.S. dollars) | 3Q 2021 | 1H 2021 |
| Revenue | $1 | $0 |
| Operating Income | ($776) | ($990) |
| Operating Cash Flow | ($685) | ($851) |
| Adjusted EBITDA | ($727) | ($955) |
| Capital Expenditures | ($469) | |
| Cash | $5,156 | $3,658 |
| Pro Forma Cash Reflecting IPO and Debt Issuance Proceeds | $19,920 | |
| Debt and Convertible Preferred | $11,085 |
Having said that, we acknowledge that Rivian has at least two very positive attributes. First, the U.S. government is aggressively encouraging and incentivizing the adoption of electric vehicles over conventional gasoline-powered vehicles.
Indeed, in December 2021, President Biden’s U.S. Environmental Protection Agency dramatically increased the fleetwide miles per gallon (MPG) requirements for each auto manufacturer to 55 MPG in 2026, up a remarkable 37.5% from the 40 MPG fleet requirement for 2021. Without vast electrification, this 55 MPG simply cannot be achieved.
Second, Rivian’s balance sheet is a fortress — a cash balance in the vicinity of US$20 billion after the IPO.
Rivian Automotive, Inc. last traded at US$103.69 on the NASDAQ.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
