When Rivian Automotive‘s (RIVN 3.71%) inventory closed at its all-time excessive of $172.01 in November 2021, the electrical automobile (EV) maker was price $153 billion — making it extra worthwhile than Ford and Common Motors. But that market cap was additionally unsustainable, because it valued Rivian at 85 instances the gross sales it was anticipated to generate in 2022.
Right now, Rivian trades at about $16 per share with a market cap of $14.5 billion — which is lower than 3 instances its projected income for 2023. Its inventory plunged as buyers fretted over its cooling progress, provide chain challenges, and chronic losses. However might its enterprise stabilize over the long run and turn into a trillion-dollar firm by 2030?
Rivian’s path towards the 12-zero membership
Rivian manufactures three sorts of EVs: The R1T pickup truck, the R1S SUV, and an electrical supply van (EDV) for its prime investor Amazon. It manufactured 24,337 automobiles in 2022, lacking its personal goal of 25,000 automobiles because it struggled with varied provide chain constraints.
Regardless of these challenges, Rivian administration believes the corporate can produce 1,000,000 automobiles a 12 months by 2030. That might signify a whopping eight-year compound annual progress charge (CAGR) of 59% (when ranging from 2022). At that very same CAGR, Rivian’s income would improve from $1.8 billion in 2022 to almost $75 billion in 2030. If Rivian trades at 14 instances gross sales by then, it might prime the $1 trillion mark and ship a near-70-bagger return for its present buyers.
That might be much like what occurred to Tesla (TSLA 6.97%), which surpassed the $1 trillion mark in October 2021. On that fateful day, Tesla was valued at 12 instances the gross sales it was anticipated to generate in 2022. Nevertheless, Tesla’s market cap has since shrunk to about $375 billion amid considerations about its slowing shipments, worth cuts in China, and CEO Elon Musk’s inventory gross sales and polarizing habits following his acquisition of Twitter final October.
Can Rivian produce 1,000,000 automobiles a 12 months?
Producing 1,000,000 automobiles per 12 months would make Rivian akin to the present-day Tesla, which produced 1.37 million automobiles in 2022. Rivian’s Illinois plant at the moment has an annual manufacturing capability of 150,000 automobiles, and it plans to extend its capability to 200,000 automobiles this 12 months. The opening of its second plant in Georgia in 2024 might enhance its annual manufacturing capability to roughly 600,000 automobiles.
That enlargement might assist Rivian fulfill Amazon’s order for 100,000 EDVs, which it initially positioned in 2019, by 2025 or 2026. It might additionally allow Rivian to satisfy its rising backlog of R1 preorders, which rose greater than 60% 12 months over 12 months to 114,000 as of Nov. 7, 2022. That pent-up demand suggests Rivian nonetheless has a whole lot of pricing energy.
Rivian is anticipated to launch its third R1 automobile, the premium R1X SUV, in late 2023 for roughly $115,000. In 2026, it intends to roll out its second technology of R2 automobiles — which can embrace its mid-size R2S SUV and rally-style R2R wagon — adopted by an upgraded model of the R2S in 2029.
It is all hypothesis at this level for Rivian
Rivian’s long-term roadmap seems to be promising, nevertheless it’s additionally anticipated to stay deeply unprofitable for the foreseeable future. In 2023, analysts anticipate it to generate $5.3 billion in income however rack up a web lack of $6.4 billion. In 2024, analysts anticipate it to generate $10.8 billion in income whereas incurring a barely narrower web lack of $4.5 billion.
Rivian ended its newest quarter with $13.8 billion in money, money equivalents, and restricted money, and its low debt-to-equity ratio of 0.2 offers it some room to boost contemporary money. However it’ll additionally proceed to burn money because it expands its vegetation and ramps up its manufacturing — so buyers should not assume it’ll easily pump out 1,000,000 automobiles per 12 months by 2030. Its progress might nonetheless be derailed by a world recession, further provide chain disruptions, and cutthroat competitors from different EV makers.
Rivian has a shot at replicating Tesla’s progress trajectory and becoming a member of the 12-zero membership by 2030, however the likelihood is slim. Along with flawlessly producing 1,000,000 automobiles a 12 months, Rivian would wish to persuade buyers it deserves to commerce at a double-digit price-to-sales ratio — which might be tough as its income progress regularly cools off in a crowded market.
John Mackey, former CEO of Entire Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. Leo Solar has positions in Amazon.com. The Motley Idiot has positions in and recommends Amazon.com and Tesla. The Motley Idiot has a disclosure coverage.