Why Is Rivian Stock Gathering So Much Attention On Wall Street?
Rivian Automotive (NASDAQ: RIVN) is charged up and ready to start trading in the stock market today, in what is sure to be one of the hottest IPOs recently. The IPO is being closely watched for good reason. That’s because it is one of the largest IPOs that the U.S. has seen in the past decade. The company has priced its IPO at $78 a share to raise about $11.9 billion. The IPO comes as Rivian delivered its first vehicles, exclusively to its own employees, just a couple of months ago.
The EV startup is hitting the stock market as it looks to make a dent in the EV market dominated by Tesla (NASDAQ: TSLA). Like the EV king, Rivian does practically everything in-house. From designing, building, to financing and selling them through their own dealerships. The electric truck and SUVs maker is also teaming up with major insurers to offer its own auto insurance. By keeping all those operations under its own umbrella, it could allow Rivian to book higher margins.
Founded in 2009, Rivian makes all-electric pickup trucks and SUVs. It employed 9,195 people as of October 30. Rivian’s entry is the latest electric vehicle maker to tap into investor’s interest for the growing market. Also, investors are getting all excited as the number of pre-orders has increased significantly over the month of October. While Rivian is still effectively pre-revenue, the company said in its prospectus that it has a backlog of 55,400 pre-orders for its R1T and R1S EVs.
Rivian Could Achieve Big Things With Big Backers
Though it’s a newcomer to the stock market, Rivian’s entry into the EV space has been more than a decade in the making. Over the years, it has attracted a wide array of heavy hitters. Amazon (NASDAQ: AMZN), an early investor in Rivian, is one of the biggest shareholders. T. Rowe Price, another major player and early investor, led a $2.5 billion investment round in the company last year. What’s more, the company also has the legendary automaker, Ford (NYSE: F) as a shareholder. Ford owns about 12% of Rivian.
Last month, former Amazon CEO Jeff Bezos called Rivian’s founder, RJ Scaringe, “one of the greatest entrepreneurs I’ve ever met”. Amazon is famously supportive of the startup, owning a 19% stake. In September 2019, Amazon even signed a deal with Rivian for 100,000 electric delivery vans. Rivian is apparently preparing to deliver the first 10,000 new Rivian-Amazon delivery vehicles on the road as early as next year. It is also worth pointing out that the contract prevents Amazon from purchasing anyone else’s delivery vans for four years. If Amazon fails to fulfill its sales obligations over two years, it will reimburse Rivian’s development costs.
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Can RIVN Stock Justify Its Sky-High Valuation?
There’s no doubt a lot of interest in RIVN stock right now, but could investors be getting potentially ahead of themselves right here? At the offering price, that would translate to a valuation of around $70 billion. And that makes it even more valuable than Japanese carmaker Honda (NYSE: HMC). Come to think of it, at such a lofty valuation, could it be too risky to jump straight into a company that still hasn’t brought in any revenue?
Recall that Nikola’s (NASDAQ: NKLA) market cap was once higher than Ford’s at one point last year, despite the former having no revenue. It’s now worth less than $6 billion after its then CEO Trevor Milton was charged by federal prosecutors with making misleading and false statements to investors. Of course, investors shouldn’t be surprised if Rivian’s stock could take off even with such a high valuation. After all, there are many investors who would make an investment without any concern on valuation.
Rather, many retail investors would bet on a young company hoping that it could scale up and become a major competitor in the increasingly crowded EV market. In other words, investors are still looking for the next Tesla. One prime example in the stock market today would be Lucid Motors (NASDAQ: LCID). The luxury EV maker is worth more than $70 billion even though the company has just begun production of its first EVs.
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What Does The Future Hold For Rivian?
Aside from the collective success of electric vehicle companies in both the U.S. and globally, it’s worth noting that Rivian’s competitive edge comes from its vehicles. While many EV makers are focusing on high quality sedans, Rivian has another focus. Its specialization in trucks, SUVs, and delivery vans could mean less competition from its domestic rivals. What’s more, these segments arguably have some of the bigger gaps in the EV market. For these reasons, some investors see this as an opportunity to buy into a company that has the potential to be a segment leader like Tesla.
So, what makes the R1T truck and R1S SUV different from most EVs? For one, they’re purpose-built from the ground up to be electric vehicles. Rivian’s R1S will be competing with other electric SUVs including Tesla’s Model X SUV and Model Y crossover. Separately, Ford’s plan to launch the F-150 Lightning at a far cheaper $39,974 starting price could also pose challenges for Rivian.
Final Thoughts Before Buying Rivian Stock
All in all, there are many bullish investors who are excited about the company’s products and its ability to succeed in the auto industry. No doubt, the price tag could deter some investors from investing in the EV startup. But perhaps you believe the company is building a valuable brand and products that will appeal to customers. If so, you may already be considering to take a chance on RIVN stock in the stock market today.
On the flip side, it’s worth reiterating that the company still hasn’t brought in any revenue. So, if you choose to invest in Rivian stock, you’re essentially buying into its vision of the future. Not to mention, it relies heavily on a single customer, Amazon, that’s also its major investor. Until investors can see that Rivian can actually deliver vehicles consistently, they may want to stay on the sidelines for now. After all, they can always initiate a position when the valuation is at a more reasonable level.
