Rivian Automotive (NASDAQ:RIVN), the EV pickup truck maker, which has yet to deliver its first trucks, went public on Nov. 10, at $78, with an implied $77 billion market value. But as of Nov. 16, RIVN stock closed at $172.01, with an implied $153 billion market value. It has dropped throughout Nov. 17.
The Nov. 16 price is twice its original price and valuation and suggests that the stock is fully valued at that level. In fact, General Motors (NYSE:GM) has just a $91 billion market capitalization and Ford (NYSE:F) is at $79 billion. And, of course, these companies produce millions of trucks, including EVs.
Nevertheless, as a part of its IPO, Rivian was able to raise $11.9 billion, and after the underwriters’ greenshoe option that rises to $13.5 billion, after expenses. That should be more than enough to get the company’s operations off the ground. The $77 billion IPO valuation (much less its $154 billion valuation) was three times its latest private financing round for $2.65 billion raised in Jan. 2021 at a $27.6 billion market value.
Rivian will deliver three types of trucks by the end of the year. One of those is a delivery truck made exclusively for Amazon (NASDAQ:AMZN). Amazon wants 100,000 of these trucks to be delivered by 2025.
Where Things Stand With Rivian
With the brokers’ greenshoe option, there are now 891 million shares outstanding, according to the prospectus (page 13). So at a price of $172.01, RIVN stock has a market value of $153.35 billion.
Moreover, $13.5 billion of that is in cash raised in the IPO. Moreover, given that it already has about $5.1 billion in cash, according to page 10 of its prospectus, as of Sept. 30, it now has over $18 billion in cash on its balance sheet.
This puts it on a par with GM, which had $19 billion in cash and securities on its balance sheet as of Sept. 30. Comparatively, Ford has about $31.4 billion on its balance sheet. But keep in mind that Rivian’s market value now significantly exceeds both of these rival truck makers.
What is more incredible about this situation is that Rivian has not yet begun production. In the most recent quarter, it made just 12 EVs. In October it delivered 156 R1T models. Rivian has collected at least 48,390 down payments for pre-orders. By year-end, Rivian plans to produce 1,200 R1Ts and 25 R1Ss and deliveries of 1,000 R1Ts and 15 R1Ss.
However, according to the Wall Street Journal, its sole plant in Normal, IL can only deliver 150,000 trucks and SUVs per year. Even if the average price is $80,000, that would bring revenue to $12 billion. That could take several years, although analyst forecasts are not yet available.
However, the Journal cites an Evercore ISI research note which indicates that by 2025 Rivian could produce sales of between $20 billion to $25 billion. That assumes it will produce significantly more than 150,000 trucks and SUVs.
Where This Puts RIVN Stock
Even if we assume that Rivian can make $20 billion in sales by 2025, that puts its forward price-to-sales (P/S) valuation at over 7.65 times. That may not seem like a high valuation, but the problem is it assumes near-perfect execution for the next four years.
It just seems that this is a full valuation as it discounts all the future production to the present with not issues. Moreover, on a present value basis, the valuation is much higher.
For example, if we use a 15% discount rate, on a compounded basis, the 4.25 year-out revenue of $20 billion discounts down to $11.04 billion. This is because the present value factor for 4.25 years in the future at an annual 15% rate results in a 55.2% discount factor. So if we multiply $20 billion in 2025 by 55.2% we get a $11.04 billion in present value revenue.
Therefore, the P/S multiple is about 14 times ($153 billion /$11.04 billion = 13.9x). That still seems a bit too low. At a 20% discount rate (i.e., 4.25 years with a required 20% ROI to be earned annually on the investment), the present value of $20 billion falls to $9.2 billion, and the adj. P/S multiple rises to 16.6 times.
That shows how rich Rivian’s present valuation really is at $153 billion in market value. As a result, most value investors will likely stay away from RIVN stock until its price comes down to a more realistic valuation.
On the date of publication, Mark R. Hake 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.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
