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Rivian faces a tougher road to profitability than Tesla ever did, analysts warn

November 11, 2021, 6:33 PM UTC

Rivian Motor‘s blockbuster market debut is one of those good news/bad news puzzles for investors.

The good: The electric-vehicle startup’s initial public offering on Wednesday minted a new tech billionaire, and made some Rivian customers a lot of money. The bad: It now carries a sky-high valuation of more than $100 billion, implying that the EV maker has the potential to be another Tesla, a prospect that belies the facts on the ground. Rivian will face big challenges ramping up production and stealing market share away from Elon Musk, analysts say.

Rivian, which stole a march on rivals in September by being first to launch an electric pickup truck, raised nearly $12 billion in the biggest IPO of 2021. Its shares raced ahead by more than 50% at one stage before closing just over $100 apiece, 29% above the $78 offer price.

The shares surged again Thursday and were changing hands at around $123, up 23%, in late morning trade.

That values the company, launched in 2009, at around $120 billion, far more than century-old U.S. auto giants General Motors and Ford, although still way behind rival electric-car maker Tesla, with its trillion-dollar market cap.

Overvalued?

Rivian, which has made only a few hundred cars so far, plans to rapidly scale up production to 150,000 vehicles a year by late 2023. But some analysts say it will have to raise its output to unrealistic heights to justify the valuation being put on it.

New Constructs, a Nashville-based investment research firm, said in a note last week that even at the then-anticipated valuation of $52 billion—half of what it went on to achieve—Rivian was overvalued.

That expected valuation “implies that Rivian will sell 2 million vehicles in 2030, or nearly 2.5 times the number of Tesla vehicles produced over the past 12 months, and 66% more vehicles than Honda sold in the U.S. in 2020.”

“These manufacturing milestones are highly improbable given Rivian’s lack of manufacturing infrastructure and experience, as well as the intense competition it faces in the EV market,” it said.

“Mini-Me of Tesla”

Not unlike Tesla, Rivian has enthusiastic supporters. Duncan Davidson, general partner with venture capital firm Bullpen Capital, told CNBC Wednesday he loves the company. “Rivian is the Mini-Me of Tesla. They follow the same playbook. They are going to do as well as Tesla in their segment,” he said.

Founded in 2009 and based in Irvine, Calif., Rivian is focusing on the most profitable U.S. market segments with a pickup truck (the R1T) and a sports utility vehicle (the R1S), both built on the same platform. The vehicles are capable of climbing steep hills in the wilderness and can accelerate from zero to 60 miles per hour on the freeway in just three seconds. 

The R1T starts at $67,500, while the R1S, priced from $70,000, should start rolling off the production line in December. Rivian had about 55,400 preorders for the two models in the U.S. and Canada at the end of October.

Rivian enjoys crucial support from two giants. Amazon has a 20% stake in the company and has ordered 100,000 electric delivery vans. Ford, whose previous investment in Rivian is worth more than $10 billion following the IPO, regards its stake as strategic. However, there could be problems under the hood. Ford and Rivian reportedly scrapped a plan last year to work together on an electric car.

An industry no longer in its infancy

It’s worth recalling how the world has changed since 2003 when Tesla was founded. Electric cars were then regarded by some in the industry as a niche or even a passing fad, and the established automakers saw little threat to their dominance from the California upstart.

But now the growing clamor for action to halt global warming is forcing governments to mandate a switch to clean vehicles, sounding the death knell for the internal combustion engine.

That transition is beginning to make the segment profitable. Tesla’s bottom line surged to $1.6 billion in the third quarter when it turned out 238,000 vehicles. This now raises the stakes on incumbent automakers, which know they are in the fight of their lives if they are to succeed in making the transition to electric vehicles themselves. 

Ford and GM, Volkswagen and BMW, and the rest are pouring huge resources into making up for lost time and delivering compelling electric vehicles to compete with Musk’s Tesla.

Not only that, but a host of new electric-vehicle makers has entered the market, such as California’s Lucid and China’s Nio

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