Rivian Still Has a Lot to Prove to Investors

Electric vehicle startup Rivian Automotive (NASDAQ:RIVN) hit the markets with a big bang thanks to its legendary initial public offering. Having originally planned to offer 135 million shares of RIVN stock at a range of $72-$74 a share, management upped the IPO to 153 million shares at $78 per share on Nov. 9.

Rivian sign outside the company's HQ in Silicon Valley
Source: Michael Vi / Shutterstock

RIVN stock surged around 29% to close its first day of trading at just over $100 a share, bringing massive gains to early investors. In fact, it goes on record as one of the biggest debuts in recent years.

Shares continued to surge, with RIVN stock hitting a record high of $179.47 on Nov. 16. However, they have fallen sharply over the past week and currently sit just above $118.

Despite the positive outlook for the EV sector, Rivian’s fundamentals are not yet strong enough to support the current valuation. Thus, investors may want to avoid the hype and wait for a further price correction before investing in RIVN stock. 

Rivian Looks to Expand Capacity as EV Market Grows

EV stocks have soared in popularity during the past couple of years. This is due in part to increased awareness of the climate crisis. Other tailwinds include high prices at the pump, improvements in EV battery technology, supportive government regulations, various incentives for manufacturers and more charging stations.

The global EV market is expected to reach almost $2.5 trillion by 2027. That would translate to a compound annual growth rate of 33.6%.

According to the World Resources Institute, “Since 2015, the global share of new passenger EVs has increased at an average of around 50% per year, a stupendous amount of growth. If growth this rapid continues, EVs would make up 50% of all light-duty vehicles sales by 2026 and 100% by 2028.”

Rivian is taking steps to capitalize on this momentum as it looks to become a leading name in the EV space.

Launched in 2009, the Irvine, Calif.-based Rivian plans to sell its electric pickup truck, SUV and commercial van to consumers and commercial fleet buyers worldwide. As of the end of October, Rivian had delivered around 156 vehicles with plans to deliver about 1,000 vehicles in 2021.

The company said it has roughly 55,400 preorders for its R1T pickup and R1S SUV from customers in the U.S. and Canada.

“We began thinking about the truck, SUV, and crossover segments as they presented a massive opportunity for us to demonstrate how a clean sheet, technology-focused vehicle could eliminate long-accepted compromises,” wrote CEO R.J. Scaringe in a letter to the shareholders. “We wanted to establish our brand by delivering a combination of efficiency, on-road performance, off-road capability, functional utility, and product refinement that simply didn’t exist in the market.”

At present, Rivian can assemble 150,000 vehicles per year at its Illinois plant. But management aims to up the capacity to 200,000 by 2023. The company plans to spend $5 billion on a second factory in Fort Worth, Texas, and was granted a $440 million tax-incentive package by Fort Worth City Council.  In addition, Rivian is considering building a battery plant near Atlanta.

RIVN Stock Has Gotten Ahead of Itself

Rivian’s market capitalization currently stands at $104 billion. That makes it the sixth-largest automaker by market cap, ahead of established leaders like General Motors (NYSE:GM) and Ford (NYSE:F). It also makes it the largest U.S. company without any real revenue. And management expects less than $1 million in revenue for Q3.

So, how did a pre-revenue company soar to a market cap of over $100 billion?

Much of investors’ confidence in RIVN stock is due to its relationship with Amazon (NASDAQ:AMZN). The e-commerce giant owns 20% of Rivian. Amazon has also announced a contract with the EV maker for a fleet of 100,000 electric delivery vans to be delivered by 2030.  The first 10,000 vans are expected to be delivered as early as next year. 

Ford owns about 12% of the company. However, it recently abandoned plans to develop an EV with Rivian. Other notable investors include T. Rowe Price Group (NASDAQ:TROW), Blackstone (NYSE:BX) and Capital Research Global Investors.

Rivian currently has two commercial models on the market: the R1T pickup truck, which starts at $67,500, and the R1S SUV, which starts at $70,000. In other words, it is keeping to a niche corner of the market: high earners. 

What’s more, Rivian will soon face competition from Ford’s F-150 Lightning EV, Tesla’s (NASDAQ: TSLA) Cybertruck, and GM’s electric Chevy Silverado, which are scheduled to launch in 2022 and 2023. Both the Cybertruck and F-150 are expected to be priced at less than $40,000 for base models.

The Bottom Line on RIVN Stock 

Despite the backing of Amazon and Ford, Rivian could face a tough road ahead as it races to ramp up production in the face of growing competition. The company needs to prove itself to customers, as well as to shareholders.

Those interested in buying RIVN stock may want to wait for a better entry point in the weeks ahead. In the meantime, those looking for exposure to the EV space should consider investing in an exchange-traded fund like the Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV), the iShares Self-Driving EV and Tech ETF (NYSE:IDRV) or the KraneShares Electric Vehicles and Future Mobility Index ETF (NYSE:KARS).

On the date of publication, Tezcan Gecgil 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.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.

Article printed from InvestorPlace Media, https://investorplace.com/2021/11/rivn-stock-rivian-still-has-a-lot-to-prove-to-investors/.

©2023 InvestorPlace Media, LLC