The Case for Rivian Automotive

Brit Ryle

Posted January 11, 2023

My grandfather was a Southern Baptist preacher. He preached in Atlanta and Augusta, before settling in a Columbia, South Carolina suburb named Cayce. One might think with a name like Lucius Corder, it’d be all fire-and-brimstone coming from the pulpit. But I never heard him raise his voice, he was a mild-mannered man. 

He was also a Buick man. Every couple years he’d have a new one, always dark blue. He knew what he liked and he stuck with it…

You see the same thing with truck owners. A Ford driver isn’t gonna buy a Chevy. Ever.  

And this is why I am a skeptic when it comes to investing in electric vehicle (EV) makers. It has nothing to do with the fact that they’re electric. 

It’s because cars – electric or otherwise – are consumer products. And consumers are both fickle and loyal. Fickle in that you can never be sure what new product will strike their fancy. And loyal because we all tend to stick with brands we like. 

And so in the early stages of electric vehicles hitting the mainstream, it seems to me like just guesswork to say that one EV brand or another will be the big winner. 

Clearly Tesla (NASDAQ: TSLA) has the early lead. The name Tesla is virtually synonymous with EV. And Tesla managed to maintain a commanding market share around 75% for several years, even as new models of electric vehicles hit the market. You wanna crown ‘em? Then crown their *ss.

But that market share slipped to 68% in 2021, and 65% in 2022. 

I can’t tell you which EVs will be the dominant brands in 5 or 10 years. But I can tell you about one EV stock that I think has a lot of upside…

203% Revenue Jump 

makes electric pickup and delivery trucks. It’s first production model – the Rivian R1T – won Motor Trend’s Truck of the year award for 2022.

Funny thing – Rivian debuted on the NASDAQ in November 2021, well after the EV stock bubble. But deadly, investors hadn’t learned their lesson and they quickly bid the shares up to $175, giving Rivian a market capitalization of $150 billion. 

Of course that valuation wouldn’t have lasted, even if Rivian met the performance goals it had laid out for its first year as a public company. By the end of 2022, Rivian only managed to make about half the trucks it had promised in its original forecast. 

No wonder the stock fell to the $18 a share level by the end of its first full year as a public company.

All About the Dollars 

It’s not at all uncommon for new IPO companies to trade lower from the price at which they went public. It is also not uncommon for a stock to start recovering after 6 months to a year after a company goes public. 

There are two good reasons for this, and they both are about the dollars. First, companies raise a lot of money when they go public. And that money is usually used to fund the company’s expansion plans. 

In Rivian’s case, it raised $12 billion from its IPO. And Rivian currently has $13 billion in the bank, helped by an sizable investment from Amazon (more on that in a minute). 

That $13 billion is a reason to be optimistic because it will fund future revenue growth. 

And as it happens Rivian is expected to grow revenue at a 200% clip in fiscal 2023. 

Rivian’s Not So Secret Weapon: Amazon

There’s nothing sexy about delivery vans (though I will admit that I really like those Mercedes Sprinters). But the numbers that can be generated from supplying vehicles to massive delivery fleets like what FedEX, UPS and even the USPS operates are very seductive.

And so it’s an attractive market for EV makers. 

In 2019, Rivian scored a major coup when signed a deal to provide Amazon with 100,000 delivery vans and secured a $1 billion investment from the delivery giant. 

Deliveries began toward the end of last year, and Amazon says it had 1,000 of Rivian’s vans on the road during the 2022 Christmas season. That number is expected to grow to 10,000 all electric delivery vans this year. 

Even better, Rivian is one of the first electric vehicle makers to get delivery trucks on the road. You can bet if the Amazon partnership is successful – and early indications say that it is – it will lead to more sales for Rivian. 

Rivian currently trades for 3 times expected 2023 revenue. That’s not outrageous at all. Shares should go a lot higher from here.

Rivian Automotive (NASDAQ: RIVN) is a strong buy under $25. My 12-month price target is $55. 

Take care,

Briton Ryle
Pro Trader Today