Rivian Has A Lot Of Room To Go Down

sarawuth702

Electric Vehicle EV shaper Rivian (NASDAQ:RIVN) came nationalist precocious with overmuch fanfare; however, it ended up being conscionable that - each sizzle and nary steak. The Macro backdrop is moving against the institution successful 2023, and determination is the opening of an energy situation forming (energy whitethorn beryllium volatile, and costly this winter). Also, determination are a fig of smaller competitors successful the abstraction that connection much worth if 1 wants to participate into the erstwhile blistery EV market.

Fundamentals

Rivian is present $18 Bn valuation but it was erstwhile overmuch higher. The company's banal is present trading astatine $19/share but it was erstwhile implicit $100. Check retired the chart:

Data by YCharts

The broader marketplace has sold disconnected this year, to beryllium fair. But Rivian has different reasons for the merchantability off. After the IPO, the Amazon woody fell apart, and past things seemed to proceed to autumn isolated astatine the seams. Rivian is simply a large institution but the question is what is the institution worth, successful valuation? That is the cardinal dollar question connected everyone's mind. Rivian has a increasing loss, look astatine the astir caller fiscal statement:

Seeking Alpha

Total Revenues are growing, but truthful is the Cost of Revenues. Is the program to simply turn by merger, acquisition, and done large partnerships similar the 1 with Amazon? That's not a atrocious strategy, but investors are counting connected 3rd parties to onslaught a deal, which is simply a immense unknown. The Amazon nonaccomplishment is impervious that it's unwise to trust connected 3rd parties.

We don't spot a wide way for Rivian to get retired of the spread they are in. In different words, if we extrapolate the existent linear results into the future, we volition conscionable spot a bigger spread getting bigger. Based connected this it's hard to accidental what the existent worth mightiness be, and we aren't suggesting 1 - conscionable that it is apt lower.

Valuation

For valuation assumptions we are typically looking astatine the Price to Earnings ratio oregon P/E ratio, but that doesn't enactment if the institution isn't turning a profit. When a institution is moving a antagonistic P/E investors are 100% exclusively betting connected aboriginal performance. Let's conscionable instrumentality a speedy look astatine a accepted car company, Ford (F) which has a marketplace headdress of astir $45 Bn and full Revenues of astir $40 Bn, and a P/E of astir 5.75 arsenic of this writing. Yes, it's hard to comparison with good established companies but that's precisely our point. Where and however bash you gully the valuation enactment for a startup similar Rivian successful a caller sector, Electric Vehicles. We each cognize the metrics however to worth companies similar Ford who person been astir for a precise agelong time.

Unfortunately, it is our sentiment that galore investors are utilizing the Tesla exemplary successful bid to worth different EV companies which is not applicable oregon appropriate. In fact, our sentiment is not lone Rivian is overvalued, but the full assemblage (excluding immoderate of the micro caps retired determination which are undervalued).

Competitors

Rivian has galore competitors arsenic the EV marketplace is simply a caller market. One could accidental that immoderate EV shaper is simply a competitor, truthful we'll database a fewer that marque akin models of vehicles, and exclude Tesla (TSLA) due to the fact that Tesla has the archetypal mover advantage. Competitors see Workhorse (WKHS), Nikola (NKLA), Arrival (ARVL), GreenPower (GP), ELMS (OTC:ELMSQ), Cenntro (CENN), and Mullen (MULN).

Out of these, we similar Mullen and Cenntro. The crushed is simple, they are micro-caps with much country to determination up, and person coagulated maturation prospects. We don't deliberation that needfully Rivian is going to beryllium displaced by a competitor, due to the fact that the EV marketplace is immense and determination is simply not capable manufacturing to support up gait with request - each caller players are welcome. However, we person to comparison apples to oranges here, due to the fact that there's a batch of country for competitors similar Cenntro and Mullen to determination up, whereas it would instrumentality a immense woody to determination the needle connected Rivian.

Cenntro Auto is simply a Chinese shaper with a beardown beingness successful the USA (Freehold, NJ) and successful the EU (Germany). Mullen is simply a US-founded radical that makes a akin enactment of EV cars, and has a beardown reputation. There are many, galore others - and that's the point.

Rivian is going to person to person the marketplace they are amended than each these up and coming companies.

EV Market

The full EV marketplace is huge, successful 2021 it was astir $200 Bn and expected to grow implicit a Trillion by 2030. There is nary question that Rivian has contributed to the affirmative improvement of a caller industry, and it's a large one. The question is however overmuch should Rivian beryllium valued astatine fixed the existent acceptable of circumstances.

EV is not conscionable astir redeeming the planet, it's astir economical sustainability. This past week determination person been power outages and rolling blackouts crossed USA, making the full infrastructure work. An EV that's powered by Solar oregon different off-grid energy would not beryllium taxable to specified disruptions. We judge EV has a large aboriginal and we are not against Rivian arsenic a company, conscionable that the banal has been pumped up with a batch of sizzle and nary steak to follow.

Conclusion

Because we consciousness Rivian is overvalued, we would merchantability here. We are not suggesting abbreviated selling, Rivian has a existent concern and it should beryllium OK successful the agelong run, fixed however important the EV marketplace is. We bash not hold with non-organic concern growth, we judge that existent maturation comes from sales, not partnerships. Sales and predictable gross streams are the keys to success, the keys to the kingdom. If you don't ain immoderate Rivian, cheque retired different EV company. If you ain it, we would merchantability it and rotate the funds into thing else.

Editor's Note: This nonfiction covers 1 oregon much microcap stocks. Please beryllium alert of the risks associated with these stocks.

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