Rivian Wants To Fight Tesla (NASDAQ:RIVN)

Rivian’s (NASDAQ:RIVN) R1T and R1S are fantastic electric vehicles with sleek futurist design profiles and enough interior space to fit plenty of people and payload. Starting at a cost of $73,000 and $78,000 respectively, these are upmarket vehicles to meet the growing global demand for electric passenger transport. To state this future looks strong would be an understatement as the list of states and countries on a planned phase-out of combustion engine vehicles has grown significantly. Indeed, California, the European Union, the United Kingdom, and South Korea all feature on this now fast-growing list that is expanding the total addressable market of EV manufacturers. This comes on the back of explosive demand growth for EVs as global sales reached 6.6 million in 2021, more than double its year-ago figure.

Rivian is a highly capitalized EV company with several corporate partnerships. There is a partnership with Amazon (AMZN) to deliver 100,000 Rivian electric vans and a recently signed partnership with Mercedes (OTCPK:DMLRY) to jointly manufacture electric vans in Europe. This will see Rivian grow its international footprint with a significantly lower capital expenditure overlay and with the expertise of the German automobile major.

Whilst Irvine-based Rivian does not directly compete with Tesla’s (TSLA) best-selling sedans, the company’s R1S and R1T will be going head to head with the Tesla Model X and upcoming Cybertruck. Rivian has anchored itself around building cars for more outdoors and adventure-orientated consumers. The market for EVs is set to become intensively competitive with several EV manufacturers emerging publicly over the pandemic years. Manufacturing a new EV is very capital heavy. It requires a deep pool of funds to support and maintain long periods of cash burn and heavy capital expenditure. This has historically created a Darwinistic backdrop for EV manufacturers and is sure to reduce long-term competition in the space to only a handful of the fittest and most competitive companies.

Deliveries Of Vans To Amazon Underway As R1T And R1S Realize Production Ramp

Rivian’s financials are too early stage to pull away significant investment decisions, the long-term story is in its infancy. The company last reported earnings for its fiscal 2022 second quarter which saw revenue come in at $364 million from zero in the comparable year-ago period. Gross profits were negative at $704 million, net loss came in at $1.7 billion with cash burn from operations lower at $1.2 billion. Total free cash outflow for the quarter stood at $1.56 billion, broadly in line with the first quarter of 2022.

For some context, with Rivian’s market cap currently at $36 billion its total cash burn for the first half of the year amounts to nearly 9% of this. The company has raised a material amount of cash to remedy the high cash burn and heavy capital expenditure phase of EV manufacturers, raising a gargantuan $12 billion when it went public late last year. Cash and equivalents of $15 billion as of the end of its last reported quarter provide significant cash runway visibility at the current rate of burn. However, management is likely getting nervous with a stock price that is down 78% from its 52-week high and as the spectre of a recession haunts the US economy. This will reduce the pathways to raising more cash.

R1 pre-orders accelerated to hit 98,000 as the company reached the 8,000 vehicles produced milestone since its Start of Production. Rivian is targeting exiting fiscal 2022 with 25,000 vehicles produced. Key to continued success next year will be the Inflation Reduction Act which as part of its broader investment allocation of $370 billion in decarbonization initiatives over the next decade will provide $7,500 in electric vehicle tax credits. The credits will be renewed in January 2023 and will last until the end of 2032, providing a boost for the fledging yet fast-growing US EV sector. Rivian’s vehicles are made in Illinois so the company is in a better position than some of its peers who outsourced production to other countries and will be ineligible for the credit.

Animal Spirits, Greed, And FOMO

Rivian went public in the latter half of 2021 valued at over $100 billion. This was the largest US IPO since 2014 and came at the top of the bull market. The next few months would see consecutively high inflation numbers that the FED had to match with interest rate hikes that have all but collapsed the valuation of growth stocks and threaten to further pull away liquidity from an already embattled stock market. The rise and fall of Rivian’s commons is much a tale of euphoric animal spirits and greed as it is of a prosperous and wealthy future ahead as EV demand goes parabolic. At one point Rivian had a market capitalization greater than incumbents General Motors (GM) and Ford (F).

So Rivian’s fight with Tesla is multi-faceted. Of course, people looking to buy a pickup truck from next year will have to choose from a list that includes either the R1T or the Cybertruck. But the real fight will be capturing the vivid imaginations of EV investors to maintain the still exuberant animal spirits that pushed once pushed its market to incredible heights. The near-term outlook will be dominated by macro factors which look torrid and continue to deteriorate so investors should not be in a hurry to buy the commons.