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Rivian Automotive, Inc. (NASDAQ:RIVN), a manufacturer of electric vehicles, provided an update on 1Q-22 production accomplishments this week. The automaker produced 2,553 electric vehicles in the first quarter at its Illinois manufacturing facility and plans to ramp up production aggressively for the rest of the year.
Despite the fact that Rivian has reduced its 2022 production forecast to just 25K electric vehicles, the company’s order book value is rapidly growing, and the company’s sales potential appears to be undervalued.
Things Are Moving Forward For Rivian Automotive
Rivian Automotive’s initial public offering (IPO) was not a huge success for shareholders, at least not for those who bought the stock early and held it until today. Rivian Automotive IPOed last year at $78 per share, selling 153 million shares in a much-anticipated initial public offering.
While Rivian Automotive’s market capitalization initially skyrocketed, the difficulty and complexity of producing competitive electric vehicles quickly woke investors up. Now, with shares trading nearly 50% below the $78 IPO price, a new opportunity is presenting itself to investors who believe Rivian Automotive has the potential to become one of the leading electric vehicle manufacturers in the United States.
Despite A Trimmed Production Forecast, Rivian Is Growing Its EV Output
Rivian Automotive reported in an update on its R1T and R1S production that it produced 2,553 electric vehicles at its Illinois production facility in 1Q-22. During the same time period, the EV company said it delivered 1,227 electric vehicles. Rivian Automotive produced only 1,015 electric vehicles in 2021 while 920 electric vehicles were delivered.
Rivian Automotive’s output increased 152% from 2021 to 2022, when only the company’s first quarter production volume was considered. Importantly, Rivian Automotive stated in its production update that it expects to manufacture 25K electric vehicles this year. When the EV company released its fourth-quarter earnings last month, it sharply reduced its production forecast for 2022. Rivian Automotive previously estimated that it would produce 50K electric vehicles.
As I explained here, the lowered production forecast for 2022 is the result of ongoing supply chain issues that have roiled the auto supplier industry. Component shortages, particularly in semiconductors, hampered multiple automakers in 2021, and the repercussions can still be felt today.
Supply Chain Woes May Get Worse Before They Get Better
In the short term, the electric vehicle industry and Rivian Automotive’s supply chain issues could worsen. Rivian Automotive has already cut its production forecast for 2022 in half, and raw material and component shortages could cause even more problems for the EV manufacturer.
Component shortages are a significant risk factor for the automotive industry, and the conflict in Eastern Europe threatens to exacerbate the situation in terms of Russian raw material exports (palladium and nickel). Investors should expect Rivian Automotive to reduce its production forecast again if supply chain issues worsen.
Pre-Order Estimate For The Rest Of The Year
Rivian Automotive anticipates producing an average of 2.1K electric vehicles per month in 2022, and the company is in the advantageous position of having more pre-orders for its electric vehicles than it can build in the short term.
In the last three months, Rivian Automotive received an average of 4K pre-orders. If we extrapolate this figure, Rivian Automotive could add nearly 40K pre-orders between March and December 2022, on top of the 83K R1 pre-orders already on the books. The sales potential, including order book backlog and estimated sales for the rest of 2022, could be up to $8.6 billion, assuming a $70K average sales price.
Rivian Automotive’s sales forecast for next year (2023) is $6.5 billion, implying a 6.3x sales multiple. Tesla’s (TSLA) sales multiple is 10.1x, which is also based on next year’s sales. This is not to say that Rivian Automotive is comparable to Tesla, but a comparison of sales multiples shows that Rivian Automotive is not as overvalued as investors may believe when looking at the EV company’s valuation.
My Conclusion
If you’ve read my previous articles about Rivian Automotive, you’ll know that I like the EV company, thanks in large part to its substantial liquidity following its IPO.
Despite supply-side headwinds, Rivian Automotive plans to ramp up production aggressively this year. Rivian Automotive’s order book value is rapidly increasing, and I believe the company has the potential to become one of the truly major players in the electric vehicle industry in the future.
Rivian Automotive’s stock is now trading in the low $40s, nearly 50% below its IPO price, and I consider it to be in bargain territory.
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