Why Rivian is the Next Tesla
I had the good fortune to grab a few minutes this week with RJ Scaringe, the founder and CEO of electric truck maker Rivian (RIVN).
Rivian produces three types of EVs: the R1T pickup truck, the R1S SUV, and Amazon's EDV (electric delivery van). Its R1 vehicles start at under $70,000 and can travel more than 300 miles on a single charge. High-end Rivian competitors include Range Rover, Mercedes G Class Gelandewagen, and Tesla Cybertruck. Rivian doesn't manufacture any electric sedans, the focus of other EV competitors.
And here is the key to buying Rivian at this particular time. At 25,000, it is right at the mass production point where Tesla shares went ballistic all those years ago. And it already has an 80% decline in the price in the rearview mirror.
Scaringe has been a car nut his whole life, spending his youth restoring vintage classics in his garage. He is no lightweight. He earned a bachelor’s degree from the famed Rensselaer Polytechnic in upstate New York, and a PhD from MIT in Mechanical Engineering.
Today, he is a billionaire in his own right. It’s nice to know that Rivian has a backup plan. Rivian now has 14,000 employees and boasts a market capitalization of $30.4 billion. Sure, that is down from a peak value of $176 billion in 2020. But that is where the big money is made, buying Cadillacs at Volkswagen prices.
Of course, Rivian’s will be compared with the Tesla (TSLA) Model X, which lacks the ground clearance and towing power of a Rivian. Perhaps a better comparison will be made against the Tesla Cybertruck, due out in 2023.
In 2024, Rivian plans to open its second plant in Georgia. After it fully expands its Illinois plant, it expects its annual production capacity to reach 600,000 vehicles -- but it hasn't set a firm deadline for reaching that milestone yet. Rivian expects to produce 25,000 vehicles in 2022 and has already added a second shift. The company came in with a strong performance, with 4,400 units manufactured in Q2 ending in July.
To say that Rivian is the hot car of the day would be a vast understatement. New cars are trading for double list on the grey market. Owners complain of getting mobbed with gawkers whenever they hit the beach or the ski slopes. The buzz has led to an outstanding order book of an impressive 98,000, or four years of current production. The obvious cool factor allows enormous pricing power.
Rivian just completed deployments of its 600 horsepower, four-wheel drive R1 vehicle across the country to gain operational feedback.
Inflation Reduction Act passed this summer greatly accelerated rollout of the entire EV industry, which created a $7,500 per vehicle tax credit on top of state benefits. Rivian is expanding charging network to accommodate greater traffic.
Looking at the earnings report shows this company is still at the venture capital level. It posted $364 million Q2 revenues but lost $704 million. High material costs, supply chain problems, and $304 million in write-downs on accounting changes added to operating woes. That brought a $1.3 billion total Q2 loss. There should be a $5.45 billion loss for all of 2022.
Scaringe remains optimistic. Rivian has $15 billion in cash to complete its buildout. He sees a clear path to 25% gross profit margin, EBITDA in the high teens, and a 10% free cash flow.
Building four vehicles on two assembly lines is costing it money. As sales ramp up, dedicated model assembly lines become more cost-efficient. Supply chain problems with semiconductors, as with the rest of the EV industry, are inevitable.
Data collection could eventually make the company more valuable than truck manufacturing alone, as is the case with Tesla. Rivians are hard to buy because Amazon (AMZN), a 25% owner of the company, gets first dibs on deliveries.
Yes, this company offers venture capital-type risks. But it offers venture capital type returns as well, up 10X-50X from here.
