The company is trying to expand its manufacturing capabilities, while its stock has dropped 90% from its highs.
For electric vehicle (EV) manufacturers, e.g. Rivian Automobile (Rivn 7.25%) In 2021. After making its debut in the public market through a large number of initial public offerings (IPOs), the stock has a market capitalization of over $100 billion, even if the company does not generate any revenue. Since then, any shareholder of Rivian has experienced a lot of pain.
Rivian shares fell 92% from their all-time high in 2021, with market indexes severely under-insufficient during this period. Now with a market capitalization of just $16 billion, it is still working hard to expand its footprint in the advanced EV space, build vertically integrated hardware and software models, and work with automotive peers public Get more investment capital.
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Vertical integration of manufacturing in the United States
Just like that legendary person Tesla Brand, Rivian aims to revive automobile manufacturing in the United States through a vertically integrated sales model. It has a factory in Illinois and is currently building premium R1 trucks and SUVs as well as commercial delivery vans. Rather than selling through third-party dealers, Rivian has built its own distribution system across the country. It also builds its own motor system and vehicle software (including autonomous driving technology) in the hope of delivering an excellent driving experience.
Currently, Rivian only produces about 50,000 cars a year, one of which is a consumer model called the R1. These are expensive vehicles with only a small portion of the population, but the acquiring people are positively reviewed below. It seems that Rivian's integrated product model is just like charm to provide its initial customer base.
To sell more vehicles, Rivian is building a cheap SUV called the R2, which will debut in 2026. The vehicle is expected to be between $45,000 and $55,000, which makes the average EV Shopper more expensive. It will add 155,000 annual units of manufacturing capacity, with a total production potential of more than 200,000. Bringing R2 to the market is crucial for Rivian to achieve profitability. In addition to high-end luxury players, it is necessary to generate profits in the automotive business.
Can a company achieve positive cash flow?
Rivian's factory construction and vertical integration sales model is expensive, which is evident when viewing its trailing financial results. Since Rivian went public, free cash flow has been negative every year, burning more than $6 billion in cash in 2023. But by cutting costs, Rivian has now greatly increased the cash burn to more than $1 billion a year. With R2 Productions expanding, the number may fluctuate, but with $7.5 billion in cash and equivalent value on the balance sheet, the company can operate in the red for many years, if necessary.
The company has many partners to help fund this manufacturing expansion, which will no longer stop in 2026. Volkswagen Group has invested in Rivian and has established a joint venture for automotive hardware and software development. The company plans to invest $2.5 billion in Rivian in the next few years under the joint venture milestone.
The Department of Energy has proposed a $6.6 billion loan related to the Georgia plant, although it is not clear that the security of the loan depends on the political environment of the electric vehicle. One of the largest companies in the world – Amazon – Owned 15% of ownership shares in Rivian and owns huge orders for commercial electric vans. It's easy to invest more in Rivian to help it expand its manufacturing capabilities.
All in all, Rivian lost a lot of money in the auto manufacturing industry, but still has a lot of cash on its balance sheet and huge partners, and can make more investments to fund its ambitions.
YCHARTS's RIVN Free Cash Flow Data
The Future of Rivian Stock
This year, Rivian is expected to deliver between 40,000 and 60,000 vehicles. It has generated $5.1 billion in revenue over the past 12 months, and once the R2 plant starts spitting out units, it could increase to $20 billion a year, then climbing even higher with other plants, such as one in Georgia. With 15 million to 17.5 million cars sold in the United States each year, electric vehicles steadily occupying market share from combustion vehicles. Rivian is one of the only remaining electric car brands in 2021 Mania, and it offers a huge opportunity to address the U.S. auto market as it expands its plant footprint.
If revenue can grow to $20 billion and Rivian can take advantage of a 5% bottom-line margin (the lower margins for the auto manufacturing business), then annual net income will be $1 billion in a year or two, bringing the stock's revenue ratio (P/E) to $16. The 16-year-old Ap/E of Rivian's growth potential looks cheap, especially if its revenue is even higher than my $20 billion estimate.
However, that doesn't mean that the stock is a guaranteed millionaire maker. The automotive business is very difficult and competitive, and bankruptcy is common. Rivian may never generate profits, especially if the auto market goes into a downturn, increasing the level of stock risk that has burned investors over the past five years. So, Rivian made a bad bet in your portfolio today.