Could Rivian Automotive be a Gateway to Wealth for Millionaires?
Tesla paved the way in the electric vehicle (EV) sector, prompting traditional manufacturers and newcomers alike to emulate its accomplishments. One of these aspiring contenders is Rivian Automotive (RIVN negative 11.16%), which managed to establish itself as a notable player with over 50,000 deliveries in 2021.
Regrettably, the stock hasn't mirrored the same upward trend. Post-IPO, shares soared but have since dipped over 90%. It's important to note that Tesla's stock also encountered a comparable predicament in the past, which, looking back, turned out to be a lucrative investment opportunity.
I decided to delve into Rivian's financials to assess the likelihood of it becoming a millionaire-making investment at current prices.
The dash for the mass market
Tesla's beginnings were with luxury offerings such as the Model S sedan and the Model X SUV, which aimed at a selective audience due to their high price points. However, these vehicles helped establish the brand's reputation. Tesla eventually introduced more budget-friendly options like the Model 3 and Model Y, aimed at the mass market and crucial for maintaining its factories' profitability.
Similar to Tesla, Rivian has made strategic partnerships to boost its presence, including manufacturing electric delivery vans for Amazon and collaborating with Volkswagen for technology sharing. Nonetheless, its core consumer-focused business largely follows Tesla's blueprint. Rivian started with premium models, such as the flagship R1T pickup truck and the R1S SUV.
Now, Rivian is transitioning towards more affordable models with broader appeal. Recently, it announced two upcoming vehicles: the R2 (a midsize SUV) and the R3/R3X (a compact crossover). Rivian plans to deliver the R2 in the first half of 2026, followed by the R3/R3X.
The company's move towards the mass market will likely make the upcoming years decisive for Rivian, which hasn't yet recorded a gross profit. Rivian anticipates approximately 52,000 deliveries in 2023, slightly surpassing last year's 50,122. However, volume growth remains insufficient to significantly decrease Rivian's $5.1 billion losses over the past four quarters.
Rivian has sufficient resources, ending the third quarter of 2023 with $6.7 billion in cash and short-term investments (totaling $8.1 billion in liquidity, including its available credit line). Moreover, it recently secured a conditional $6.6 billion loan from the U.S. Department of Energy to fund a factory in Georgia, and Volkswagen has committed to investing up to $5.8 billion as part of their joint venture.
Ideally, the additional capital will facilitate the launch of the R2 and R3 models, just as Tesla's production expansion almost bankrupted the company during the Model 3's launch.
Analysing the stock's valuation
Although Rivian's share price has fallen since 2021, its valuation doesn't yet present an appealing bargain. It's tempting to compare Tesla's valuation to Rivian's due to their EV similarities, but this may not be prudent. Tesla is a profitable EV leader, boasts a renowned CEO, and features numerous non-automotive growth opportunities in its portfolio, including energy, artificial intelligence, and humanoid robotics.
Rivian's stock still sports a substantial price-to-sales ratio compared to virtually every successful non-Tesla automotive company—even the one that invested in it.
Sure, Rivian has greater growth potential than established automotive brands. However, the company is still in the red, hasn't realized that potential, and is embarking on a daunting journey to develop, launch, and grow its high-volume models. Success isn't guaranteed, and Rivian's current valuation leaves plenty of room for further share-price decreases if the company encounters difficulties.
Is Rivian a potential millionaire-maker?
Tesla's victory frequently overshadows the automotive industry's challenges. While Rivian may succeed, a promising business outcome doesn't guarantee substantial investment returns. Compared to other incumbent automotive companies, many of which have underperformed the S&P 500 index during the previous decade, it remains unclear what Rivian's eventual earnings would look like or how many shares Rivian investors will have to spread them across—given the company's rising share count since its IPO. The frequent issuance of new shares dilutes investors, reducing investment returns.
Rivian is a risky venture operating in an extremely competitive and historically unforgiving industry that often fails to produce successful examples. While possible, it seems that there may be better investment options available.
Despite Rivian's ambitious plans to enter the mass market with affordable models like the R2 and R3, the company has yet to record a gross profit. This financial milestone is crucial for turning a profit and providing a potential return on investment for shareholders.
Before considering Rivian as a millionaire-making investment, it's essential to consider its current price-to-sales ratio, which is substantial compared to successful non-Tesla automotive companies. This high valuation leaves plenty of room for share-price decreases if the company encounters difficulties in its growth journey.
