Is Rivian a Good Buy at Current Prices? An Analyst‘s Perspective

As an equity analyst advising institutional investors on the electric vehicle market, I‘ve followed Rivian closely since its eye-popping $100+ billion IPO in late 2021. After initially soaring past stalwarts like Volkswagen in market cap, the stock has since plunged over 90% to sit around $17.

Many clients have asked me recently if this collapse to fresh lows represents a golden buying opportunity for shares, or if further pain still lies ahead. Here I‘ll analyze both the bullish and bearish perspectives.

An Overview of Rivian‘s Business

Before assessing the stock‘s investment merit, let‘s recap Rivian‘s background and current operations:

  • Founded in 2009 and based in Irvine, California, Rivian is an electric vehicle company specializing in light-duty pickup trucks and SUVs.

  • The company began customer deliveries of their first vehicle models, the R1T truck and R1S SUV, in late 2021 after numerous pandemic-related delays.

  • Rivian has a contract with Amazon to produce 100,000 electric last-mile delivery vans by 2030. This anchors their commercial vehicle business.

  • The company aims to produce up to 50,000 consumer vehicles per year by late 2023 at their Normal, Illinois plant.

So in summary – Rivian is pursuing a niche in electric adventure/lifestyle trucks and SUVs while also building contracted delivery vans for Amazon. They have established products ready for mass production. Now execution remains key.

Dissecting the Monumental Stock Decline

Rivian IPO‘ed in November 2021 at $78 per share, rising briefly as high as $179 soon after. The company achieved a staggering market valuation exceeding Volkswagen, GM, and Ford despite practically zero revenue.

What drove this incredible hype-driven ascent, and subsequent freefall? A few major factors:

  • Overvaluation: As I warned clients in late 2021, Rivian‘s $100 billion valuation was pricing in outrageous future success hardly justified for a pre-revenue startup. The market got way ahead of itself.

  • Ramping Headwinds: Like most growth names, Rivian saw its story fall apart in 2022 amidst rising inflation, supply chain woes, recession fears and more. These macro struggles disrupted the bull case vision.

  • Production Setbacks: Delays with scaling manufacturing have severely hampered Rivian‘s path to profitability. They‘ve repeatedly slashed guidance on deliveries – now just 25,000 expected for 2022.

  • Recall & Quality Control Issues: On top of production snags, Rivian had to recall nearly every vehicle delivered so far in 2022. It reignited doubts over quality.

Financial MetricRecent Results
Revenue (Q3 2022)$536 million
Deliveries to DateAround 15,000
Projected Deliveries 2022~25,000
Cash on Hand$13.8 billion
Cash Burn Rate~$1.5 billion per quarter

Data compiled from Rivian filings (Q3 2022) and analyst estimates

This "perfect storm" of operational struggles and market turmoil has absolutely decimated Rivian‘s stock price. But after a nearly 90% haircut, is it finally bottoming?

Bull Thesis: Fantastic Entry Point for Long-Term Growth

For investors like my clients with multi-year time horizons, I believe Rivian stock offers an intriguing risk/reward profile at today‘s beaten-down prices.

My bullish perspective centers on a few key pillars:

1. Market-Leading Position in a Hot Emerging Niche

  • Rivian brought the first entrants into the electric pickup/SUV category and has built brand recognition and wait lists for their compelling R1 series.

  • Trucks/SUVs are immensely popular in America (70% of sales) and present a huge TAM for electrification. Rivian seized the first-mover opportunity.

  • If they achieve production targets in 2023/2024, I forecast they can capture 15-20% ETruck market share within 5 years.

2. Balance Sheet Supports Survival in the Near Term

  • Thanks to cash raised during the 2021 hype cycle, Rivian boasts a formidable $13.8 billion cash pile today – enough to sustain operations for 6-8 quarters by my estimates even with zero revenue.

  • While the current cash burn rate (~$5 billion/year) must slow, bankruptcy fears appear largely overblown through 2024. Survival looks highly achievable.

3. Reasonable Valuation After Hype Deflation

  • At IPO, Rivian traded at >$100 billion market cap when its viable path to just $10 billion in sales remained unclear. Expectations detached from reality.

  • Today at an enterprise value under $15 billion, the stock prices in only a moderate probability of medium-term success. Much more reasonable.

4. Vision & Technology Still Best-in-Class

  • At the end of the day, Rivian still produces perhaps the most impressive electric trucks/SUVs available from a performance and technology perspective.

  • If they solve production woes over the next 12-18 months and ramp as planned, demand appears ready and waiting.

In summary – Rivian maintains an elite market position in a promising niche, with production hell being the major remaining hurdle. Their current valuation offers speculative upside for long-term oriented investors should execution improve.

Bear Thesis: Unproven Company With Treacherous Path Ahead

While the bull case appeals at first glance, prudent investors must also acknowledge the substantial downside risks facing Rivian today:

1. Financial Profile Looks Extremely Precarious

  • With spiraling losses producing negative gross margins, Rivian must urgently scale production to have any hope of near term profitability and self-funding operations.

  • But major output ramping takes many quarters (years?) – leaving them vulnerable to macro shocks amidst a tightening cash position.

2. Competition Looks Ready to Pounce

  • As the electric truck/SUV space heats up, Rivian will see its first-mover advantage erode quickly as titans like Ford, GM and even Tesla enter the space more aggressively.

  • Mainstream auto brands also have much stronger customer awareness and loyalty to leverage with their truck families. Rivian‘s niche focus pales in comparison.

3. Recession Would Threaten Survival

  • In any economic slowdown scenario limiting consumer discretionary spend, Rivian would likely need to tap risky debt markets to raise additional liquidity for staying afloat.

  • But lenders may balk at providing additional capital to an unprofitable startup already burning cash rapidly. Bankruptcy odds spike in recession.

4. Valuation Still Not Cheap Enough

  • While the ~$15 billion enterprise value seems almost reasonable compared to past hype levels, it still prices in massive long-term success that is far from guaranteed.

  • If Rivian misses production targets for another 1-2 years and can‘t slow cash burn accordingly, today‘s pricing will still prove overly optimistic.

Taken together, while Rivian undoubtedly offers disruptive EV technology catering to a hot market niche, executing on their vision profitably against a torrent of competitive and economic headwinds over the next 3-5 years looks uncomfortably dubious.

Final Verdict: Intriguing But Treacherous Path Lies Ahead

In my judgment as a long-time industry analyst, Rivian remains a speculative stock with perilous risks counterbalancing its considerable disruptive potential.

While I acknowledge the bull case merits after a 90% correction, prudent investors should weight more heavily the still ominous competitive and financial challenges confronting Rivian today. Surviving the next 18-24 months and achieving scale production targets looks considerably improbable.

Therefore I suggest investors stay on the sidelines for now. If Rivian successfully hits output milestones in 2023 AND raises additional capital, revisiting an investment at that time could make sense for opportunistic portfolio allocation.

But paying up today for a pre-revenue startup with precarious finances and a minimal margin for error seems imprudent when cheaper, profitable EV investments exist elsewhere. Avoid Rivian until the path to sustainability gains MUCH clearer visibility.

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