Shares of Rivian Automotive (NASDAQ:RIVN) has been stealing the spotlight over the past couple of days. After its IPO last week, the share price has risen to over $170, placing its market capitalisation at a massive $146.7bn! Excluding Tesla and Toyota, this makes it one of the most valuable automotive companies in the world.
Does this valuation make sense? Absolutely not. Let’s explore why investors are so excited by the growth potential of Rivian shares and why I’m not going anywhere near it.
A rising star in the electric vehicle space
First off, what is Rivian? This business is an electric vehicle (EV) company looking to take on the likes of Tesla. In 2019, Amazon invested $700m into the then-private company, ordering 100,000 electric vans in the process. Ford Motors has also taken a significant stake. So, clearly, industry leaders are seeing potential.
As a result, the firm has already been dubbed ‘the next Tesla’ for many investors. And looking at its R1T model, it’s easy to understand why. This five-passenger pick-up truck can reach a distance of 314 miles on a single charge which could be boosted to over 400 miles before the end of 2022.
With the ability to go from 0-60 mph within three seconds, the vehicle was also designed to compete with other electric SUVs, including the Tesla Model X. The company also has a seven-passenger alternative model, the R1S. And, combined, these will be the firm’s flagship consumer-facing EVs.
On the commercial-facing side of the business, Rivian has three electric vans in its portfolio that vary in storage capacity. These are the ones Amazon’s interested in. And given the rising demand for the logistics sector to cut carbon emissions, I think it’s likely other firms will be casting an eye on Rivian’s vehicles.
This all sounds very exciting. But are Rivian shares worth nearly $150bn?
Ignoring the hype around Rivian shares
After getting past all the excitement surrounding this business, some essential facts emerge. Most notably, the company’s lack of vehicles on the road. As it stands, none of its consumer or commercial EVs have made it into the hands of customers. That means Rivian is a pre-revenue business.
The group has begun making the first set of deliveries for its R1T model. And the R1S model is timetabled to come to market before the end of the year. As for its Amazon contract, a grand total of 10 vans are expected to be delivered in 2021, with most of the 100,000 ordered arriving before the end of 2025.
With no vehicles on the road, it’s virtually impossible to tell whether Rivian’s offer will even be popular or live up to expectations. But even if they do, the firm’s mass-production capabilities is still an unknown. The auto industry is an incredibly challenging sector to thrive in, especially for young entrants like Rivian. Even Tesla struggled for over a decade trying to scale its manufacturing facilities.
With that in mind, I think investors are being exceptionally over-optimistic about the capabilities of this business to deliver returns. Over the long term, this could undoubtedly be a thriving company. But it has a long road ahead to prove that. Therefore, personally, I think Rivian shares look like a bubble getting ready to burst.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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