Rivian, an electric vehicle startup based in America, recently made a splash with a big IPO. Less than a week later, the company, trading as RIVN, has become the third most capitalized car maker, behind Tesla and Toyota.
Despite the amount of interest in the company’s stock, should you buy Rivian shares? In this article, we look at both sides of the coin.
Rivian was founded by RJ Scaringe, who is the CEO, in 2009. The company spent many years behind the scene before starting delivery of its R1T electric pickup truck. The electric SUV, R1S, is based on the same platform and will come soon.
The company debuted on the Nasdaq on November 9th, listing its 153 million shares at $78 each, giving it a $77 billion valuation. This netted Rivian $11.9 to spend on its production ramp-up and expansion. By November 16th, the valuation had jumped to more than $151 billion.
Rivian enjoys the backing of big companies. Amazon, the online retail giant, has a 20 percent stake in the company and is bolstering that with 100,000 orders of electric vans for delivery from Rivian. As an advantage of the relationship, Rivian gets free press coverage at events involving Jeff Bezos’ companies, including when Blue Origin sent the Amazon founder to space.
Other backers include Ford, who now owns 12 percent in Rivian and is open to technical collaboration.
Another advantage Rivian has is that it is playing in a market that is still growing, meaning there are endless growth opportunities. With more governments promoting electric vehicles globally, demand for Rivian vehicles will rise, and there is no telling how much Rivian can grow as a company. Rivian has also chosen two vehicle categories with the largest share combined of the US auto market.
The third factor in support of buying Rivian is its expansion plans. The company is not content with its 150,000 unit capacity at its plant in Illinois and is going to expand the facility. This is apart from the second factory it is proposing to build.
Lastly, Rivian is following the template that brought Tesla worldwide success. It sells directly to customers, sets up its own public chargers, and does many manufacturing parts in-house.
However, before you snap up Rivian shares, consider the cons.
Rivian has had an enormous valuation, which it could find hard to sustain. Many analysts are playing it cautiously as it takes a bit for a company’s stock to settle after an IPO.
Adding to that, Rivian does not have high numbers to boast. It has produced fewer than 200 vehicles and might not get up to 1,000 in 2021 as it tries to ramp up its production.
It is also a fact that Rivian is not immune from the risks a startup faces to establish itself, especially in a demanding and investment-intensive sector like car manufacturing. It is also beginning to face issues, with a former VP suing the company for a toxic workplace.
Lastly, despite the possibility of growth, Rivian faces lots of fierce competition. Its electric pickup truck competes with the likes of Tesla’s Cybertruck, Ford’s F-150 Lightning, and Chevy Silverado EV, all of which are significantly more affordable. In the SUV segment, Rivian will compete with Volkswagen, Lucid, Stellantis, etc.
Note: this is not financial advice from experts, so make an informed decision before buying.