Rivian (NASDAQ:RIVN) has had a hard landing back to reality in terms of its valuation in the past month. The truck and SUV electric vehicle (EV) maker went public last month at $78. RIVN stock immediately shot up to a peak price of over $172 per share on Nov. 16. Since then its has drifted lower, and a month later it closed Monday at $88.98.
Now analysts are starting to accept that the company never deserved that high a valuation. They are coming out with their initial assessments and recommendations.
Given that it still has a market capitalization of almost $84 billion, a number of these analysts are skeptical. After all, General Motors (NYSE:GM) has a market cap of $79 billion, or slightly lower than Rivian. And even Ford Motor (NYSE:F) has a market valuation of $78 billion, also below Rivian’s $84 billion market cap. Both of these companies have huge production figures and are even delivering some EVs.
Of course, Rivian’s market cap is nowhere near that of Tesla (NASDAQ:TSLA), which has a market value of $902 billion. Tesla is expected to come out with its own Cyber truck production and deliveries late in 2022, but it already has SUVs (Model Y).
Where Things Stand For Rivian
On Dec. 16, Rivian delivered its first quarterly results and produced a shareholder letter for investors with some good news. It now raised $19.9 billion in cash on its balance sheet, including $1.2 billion in senior secured debt. That gives it net cash of $18.7 billion before expenses and costs during the quarter, about what I projected in my last article on Rivian.
This is a huge cushion for the company, which it can use to ramp its truck and SUV manufacturing volume up over the next year. For example, Rivian said that its free cash flow (FCF) was negative $1.154 billion during the quarter. This includes $685 million in negative operating cash flow and capex spending of $469 million.
Here is why that is important. This implies that the annual run rate of cash burn is 4 x $1.15 billion, or $4.6 billion annually. Obviously, that burns through a good portion (about 23% of its available cash) annually.
In other words, the company has to get FCF positive within the next few years, or it will face a crisis. As it stands now, assuming demand for its truck (S1T) and SUV (S1V) models is high, the company should be able to make it.
Rivian clearly has had cash burn during the quarter and more will probably be burned this fourth quarter. I suspect that its cash balance is now down at least $3 billion to $16.9 billion or slightly lower. This helps to sustain its $84 billion market value, but the company needs to quickly get to being FCF positive.
Where This Leaves RIVN Stock
I want to see a full quarter of production costs and also its final balance sheet at the end of Q4 before I can put a clean value on RIVN stock. However, it was not hard last month to figure out that the stock was likely overvalued.
However, I suspect that now the stock is getting close to a realistic valuation. In fact, I would not be surprised to see the stock fall below the $78 IPO price from November 2021.
If that were to happen, it would be a good time to take another look at RIVN stock, in terms of how realistic valuation really is. At least then, there is some objective measure or tether of value that we can judge its value. This is despite the fact that we still don’t know how well its trucks and SUVs will sell.
On the date of publication, Mark Hake did not hold (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.