Rivian Automotive Inc (NASDAQ:RIVN)
Investing in the start-up of electric truck companies. The current price of a share of Rivian Automotive is significantly lower than its initial public offering price of $78 per share and is more than 90% lower than its all-time high. The stock also trades at a significant discount compared to the stock of other electric vehicle start-ups.
It’s possible that the management of Rivian (NASDAQ:RIVN) should take a cue from Meta Platform (NASDAQ:META) and do something about this issue now that it’s come to their attention.
Rivian’s stock price has been going down, yet the company still has a market valuation of about $12 billion. The market capitalizations of Lucid (NASDAQ:LCID), Polestar Automotive (NASDAQ:PSNY), and Fisker (NYSE:FSR) are approximately $14 billion, $8 billion, and $2 billion, respectively.
Nevertheless, that is only one aspect of the story. Rivian has a lot more capital than those EV start-ups. At the end of 2022, it had a balance of $12 billion on its books. The remaining three concluded 2022 with a total of half of that amount.
Rivian stock recently traded at a price that was lower than its cash worth, and the company’s enterprise value, which is simply the market capitalization plus debt subtracted from cash, fell below $1 billion, placing it in fourth place behind the other three start-ups.
In spite of Rivian’s improved sales, the company is still valued somewhat lowly. In 2023, it is anticipated that the electric vehicle start-up will have generated revenues of $4 billion. It is anticipated that Polestar would produce around $3.8 billion in revenue in 2023. According to Wall Street’s projections, Fisker will bring in $2.1 billion, while Lucid will bring in $1.3 billion.
The circumstances surrounding Rivian appear to be a little strange, which is made possible by a few different factors. To begin, the observations regarding cash and enterprise value are merely theoretical. Investors are unable to withdraw their money from the company.
The other reason is spending. Rivian spends a significant amount more than her peers. The corporation utilized around $6.4 billion in cash in 2022 and is likely to use another $6 billion in 2023. The remaining three spent approximately $5.6 billion collectively in 2022.
A change in spending philosophy could be just what the stock needs to turn sentiment around. Take a look at Meta Platforms, for example.
In February, CEO Mark Zuckerberg indicated his company would focus on efficiency and spend less on new equipment in 2023. Since his comment, Meta stock is up about 30%, gaining roughly $100 billion in market cap. Throughout the same time period, the Nasdaq Composite has had a decline of 1%.
There is a great deal of potential for improvement in terms of spending. Recently, an analyst working for Morgan Stanley named Adam Jonas mentioned that when Tesla was approximately the same size as Rivian is right now, the company was generating gross profit margins of about 20%. Rivan is anticipated to produce gross profit margins of negative 50% in 2023.
Jonas rates Rivian shares as Buy and has a $26 price target for the stock.
The amount of money spent by Rivian and Lucid cannot be compared to the amount Tesla spent when it was beginning manufacturing of its first model. In 2014, Tesla paid around $18,000 in operating expenses per vehicle. The numbers for Rivian are approximately $75,000, and those for Lucid are approximately $108,000.
It might appear that Polestar is the most efficient company, however, the company does not own any of its manufacturing units. It manufactures its Polestar 2 electric vehicle using the capacity provided by its parent company, Volvo. Additionally, it makes use of the Volvo dealership network.
Fisker Didn’t Ship Vehicles in 2023
Lucid loses on efficiency mainly because its delivery quantities are lower. Rivian spends more money than Lucid, with around $3.7 billion spent on operating expenses in 2022 compared with $1.3 billion for Lucid. When Tesla was about the same size as it is now, the company’s annual operating expenses were approximately $1 billion.
If Rivian is successful in persuading investors that it would be more effective, the stock might trade more similarly to Lucid or Polestar. The current market price of Lucid is approximately 9.4 times the company’s enterprise value to the estimated 2023 sales. About 2.2 times the amount is what Polestar trades for. Rivian stock would be worth approximately $25 per share if it was valued using an average multiple of approximately six times expected sales for 2023, representing an increase of approximately 100% from recent prices.
Purchasing some of their own company’s stock is one more step that Rivian’s management can take to shift investor perception.
“We find it rather interesting that we have yet to see a single instance of insiders purchasing shares on the open market,” says Jonathan Rowe, a research analyst at Battle Road. “We think it rather remarkable that we have yet to see a single instance of insiders purchasing stock on the open market.” Battle Road has given a Hold rating to Rivian shares. The firm doesn’t have a price target for Rivian stock.
Another method for corporations to demonstrate that they are serious about transformation and positive about the future is to engage in insider buying. Whichever course of action Rivian chooses to take, it needs to take it promptly. Investors can’t stomach much more suffering at this point.
Featured Image: Megapixl
