When I last discussed Rivian Automotive Inc. (RIVN, Financial) on Sep. 28, I opined that the upstart electric vehicle company’s first production model, the 2022 Rivian R1T, was undoubtedly impressive from a technical standpoint. However, I also cautioned that its first-to-market EV truck would soon have to face off against stiff competition from other automakers, several of which have been fast-developing electric pickup truck offerings of their own.
While investors have always known that competition would inevitably become a major issue for Rivian, it has lately ceased to be their primary source of concern about the company.
IPO success
Rivian's stock began trading on Nov. 10 to much market fanfare. The company sold 153 million shares at an initial public offering share price of $78, bringing in an impressive $12 billion in fresh capital and garnering an astonishing $66.5 billion market capitalization in the process.
The company continued to receive a warm welcome from the market in the days following its historic IPO. Within its first week of trading, enthusiastic investors had driven Rivian’s stock as high as $170 per share, implying a valuation in excess of $144 billion.
While Rivian's public market debut was a smashing success by any metric, its stock has pulled back a bit. From a post-IPO high of $179.47 per share on Nov. 17, the stock retreated to $104.67 by Dec. 3, a more than 40% drop from the peak. This decline failed to become a rout, however, with Rivian’s stock regaining some lost ground. As of Dec. 8, shares have climbed back above $121.
Range claims under scrutiny
Questions were recently raised about Rivian’s technological capabilities thanks to testing performed by Amazon.com Inc. (AMZN) of the company’s forthcoming EV van. The test results suggest the company’s claimed range and performance capabilities may be overstated, as Reuters reported on Nov. 19:
“Rivian Automotive Inc's electric vans for e-commerce retailer Amazon.com Inc may have a more limited range than what was previously disclosed, The Information reported on Friday, citing a driver testing the vehicle. The driver told The Information that the battery drained about 40% faster than normal if the van's heating or cooling was on...Rivian had disclosed the vans would have a range of between 120 miles and 150 miles depending on their size. But that range is much lower depending on the weather, the report said.”
While there has hardly been a shortage of similar overstatements about performance on the part of EV companies, Rivian can ill afford questions of its technological capabilities at so early a stage in its development. Thankfully, the final production version of the van will be better insulated, according to Amazon, but it will remain a question mark for the time being among skeptics.
Ford partnership on the rocks
Perhaps the most concerning recent development for Rivian is the cancellation of a major planned collaboration with Ford Motor Co. (F, Financial), as the Wall Street Journal reported on Nov. 19:
“Ford Motor Co. and Rivian Automotive Inc. have decided to go their separate ways rather than collaborate on future electric vehicles, backing away from an earlier strategic pact that led to a multibillion-dollar windfall for Ford. Executives from both companies this week decided to scrap plans for a specific electric vehicle, a Ford spokesman said Friday. The automakers mutually decided to focus on their own projects, scrapping plans to jointly develop a new model as had been envisioned under a partnership struck in early 2019.”
The Ford partnership has been an important part of Rivian’s value proposition since it was announced in 2019. Until recently, the two companies seemed committed to their collaboration, which would see them jointly develop an EV product. However, things have changed as the F-150 Lightning, which Ford developed independently, has gained steam over the past year or so. With the electrified F-150 looking set to be a hit, as I have observed previously, it appears Ford no longer feels that it needs Rivian.
My take
Rivian is still very much the new kid on the EV block, and the market’s enthusiasm is unmistakable. When it was trading above $170 per share, Rivian boasted a larger market capitalization than Volkswagen AG (XTER:VOW3, Financial), a company that sells millions of cars every year, including hundreds of thousands of EVs, as I discussed previously. Clearly, the market had high hopes for Rivian despite it having just one production vehicle model on the market thus far. However, such great expectations are far from guaranteed to materialize in practice.
With monumental amounts of growth already priced in, I find it hard to see Rivian as anything other than significantly overvalued.
