Sometimes a stock can really get a jump when it first launches into the public markets. As an example, Rivian (NASDAQ:RIVN) went public on Nov. 9. So far since that date, RIVN stock is up 47%.
The incredible thing about the Rivian gains is that Ford’s (NYSE:F) 12% stake is valued at around $15 billion based on Wednesday afternoon’s market capitalization of around $130 billion. Amazon’s (NASDAQ:AMZN) 20% stake is worth $28.6 billion based on that same market cap.
Ford paid $820 million for its equity position, which has it sitting on a 1,729% gain over three years. This represents 19% of Ford’s $78 billion market cap. If you’re a Ford shareholder, you have to be ecstatic. If you’re Bill Ford or CEO Jim Farley, you’re over the moon.
What happens next from both Ford and Amazon will be interesting to see. Unfortunately, neither company will be too eager to fork over the $88 billion required to buy the electric vehicle start-up.
For now, it seems that both will continue to maintain their Rivian stakes as strategic minority investments rather than pursue outright majority control. But that’s assuming the jump in price is justified. So I’ll consider both sides of the argument.
RIVN Stock Gains Are Justified
Rivian CEO RJ Scaringe recently said that he expects the company to be producing one million vehicles annually by 2030 from as many as four assembly plants around the world. The vehicles produced from those plants include its R1T pickup, R1S SUV, and Amazon’s electric commercial van.
Its current plant in Illinois has an annual capacity of 150,000. It can up that capacity by 33% to 200,000 and plans to do so by 2023. Its second factory will also be in the U.S., followed by plants in Europe and China.
So, let’s assume that it gets to one million vehicles by 2030. What kind of valuation should it have at that point?
Well, Tesla (NASDAQ:TSLA) sold its one-millionth vehicle in March 2020, just 17 years after the company was founded. This happened at the same time as its Model Y launch, its fourth electric vehicle that’s available for sale.
In 2020, the company produced and delivered 509,737 and 499,550 vehicles, respectively. In 2021, it’s on track to deliver one million vehicles annually.
Through the third quarter, it delivered 627,350 vehicles. In Q4 2020, it delivered 180,667 vehicles. In Q3 2021, it had 20% sequential growth to 241,391 vehicles. Assuming 20% sequential growth in Q4 2021, that’s 289,669 vehicles for a total of 917,019. So it’s conceivable it could hit the million-mark with a solid final quarter of fiscal 2021.
Tesla’s market cap is $1.01 trillion despite the 10% decline in the past week due to Elon Musk’s stock sales. Based on one million vehicles, the market cap works out to $1.02 million per delivered car.
Today, Rivian is valued at nearly $111 billion. To get to $1 trillion, it would require RIVN stock to grow 27.7% compounded annually over the next nine years. Tesla’s stock over the past 10 years has appreciated by 65.4% on an annualized basis.
Based on this history, I’d say Rivian can get to $1 trillion by the end of 2030 if it hits delivery marks.
It’s Got No Revenue
Bloomberg recently stated that Rivian is the largest U.S. company by market cap without any sales to show for it. That’s some trick. It’s knocked Lucid Group (NASDAQ:LCID), another EV start-up, off the mantle.
“[It’s] seriously mind boggling when it hasn’t even earned any discernible revenue yet,” Bloomberg reporter Michael Hewson, chief market analyst at CMC Markets, stated about Rivian’s valuation.
Speaking of valuations, Rivian has the fourth-highest market cap of the major automotive manufacturers behind only Volkswagen (OTCMKTS:VWAGY), Toyota Motor (NYSE:TM), and Tesla. Those three company’s trade at 0.5x, 0.9x, and 25.6x sales, respectively.
So, assuming a similar multiple to Tesla, it ought to have $4.8 billion in revenue. It has none. That suggests valuations have gotten excessive.
“Despite the popularity of the electric vehicle market and huge gains in Tesla’s stock, we think investors should avoid the temptation to buy Rivian shares,” investment research firm New Constructs said about Rivian before its initial public offering (IPO) in a CBC article.
New Constructs went on to say it’s ridiculous to pay such a high price for a company’s stock that has yet to prove it can consistently produce and deliver vehicles.
The Bottom Line for RIVN Stock
While it’s easy to get excited about another U.S. EV company coming to market, I do think that the cart has gotten ahead of the horse in this situation. I could see its shares dropping under $100 before the end of the year. So I don’t see the jump in price to be justified.
That said, Rivian could be the next Tesla, rising ever higher despite all the naysayers chiming in about its overvalued stock.
If you’re a speculative investor, I don’t see a problem buying some under $100. However, if you’re not risk-tolerant, I would buy Ford or Amazon to ride the Rivian wave.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.