The Glass is Actually Half Full

[Zoidz]

I think everything the OP said was reasonable.

And I think the "analysts consensus" graph isn't worth the pixels it's printed on - those analysts are the same one who can't seem to accurately predict anything about Rivian over the past two years.

Agree. A typical ANALyst commenting on RIvian is Herman, I mean Gene Munster, most recently stating "Apple should buy Rivian". I've been hearing his commentary on Apple for more years than I can count. His track record is marginal at best. He said Apple VR was going to be released in 2017.... then 2018.... etc. In 2017, Munster said there would be 98,000 FULL autonomous vehicles shipped in 2020, lol.

These "analysts consensus" charts regarding tech companies are garbage. I ignored their fodder when I bought Apple way back in the doom and gloom "Dark Days", and four years ago when I bought NVidia. Never looked back.

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[DuoRivians]

There are many reasons why to feel good about Rivian from a product pov. I think OP’s original post highlights a lot of them.

But from a financial perspective, there isn’t much. A lot of it is based on the premise: “everything will somehow work out.”

Thats nice and all. But, I find it strange that one would easily accept “everything will work out” yet be quick to dismiss analysts’ consensus financial forecasts. It smells of cognitive bias.

 

[VSG]

Then there's the crowd that says Rivian should use Magna so they don't have to spend money on a factory. Just like Fisker did ...

Rivian has made a lot of smart and/or lucky moves over the years just to get to where they are now, while others have flailed and disappeared along the way. So I'm inclined to think they have a better grasp at what they're doing than most analysts.

 

[DuoRivians]

Then there's the crowd that says Rivian should use Magna so they don't have to spend money on a factory. Just like Fisker did ...

Rivian has made a lot of smart and/or lucky moves over the years just to get to where they are now, while others have flailed and disappeared along the way. So I'm inclined to think they have a better grasp at what they're doing than most analysts.

Rivian was the most well funded, out of the new domestic EV companies. That buys a lot of time and trial/error. This can explain a lot of why Rivian has lasted longer than others. The other being Rivian makes fantastic products.

Whether Rivian’s approach to date (eg build new factory in GA versus expand Normal somehow) is correct or not is TBD.

All I’m saying is that great products alone shouldn’t give confidence that Rivian will “make it” or that the current share price isn’t fairly priced.

 

[VSG]

All I’m saying is that great products alone shouldn’t give confidence that Rivian will “make it” or that the current share price isn’t fairly priced.

And I'm not saying otherwise. The converse of that is that a terrible stock price shouldn't give confidence that Rivian is doomed, about to get bought out, or in danger of bankruptcy. I simply don't consider the stock price at a high-risk startup company to have much bearing on its value - I judge that other ways.

 

[DuoRivians]

And I'm not saying otherwise. The converse of that is that a terrible stock price shouldn't give confidence that Rivian is doomed, about to get bought out, or in danger of bankruptcy. I simply don't consider the stock price at a high-risk startup company to have much bearing on its value - I judge that other ways.

Yes, broadly agree.

I will say there are a few reasons why market cap (less about share price) would matter.

I think Rivian needs to raise $5B in cash (and/or figure out how to reduce capex spend proportionally).

Option 1: Raise $5B in debt

Rivian’s current debt/equity ratio is $4B/$10B = 0.4.

0.4 isn’t bad. But if Rivian raised all of $5B in debt, that’ll result in $9B/$10B = 0.9 ratio. Which is bad, and that would put that debt squarely in junk territory.

Option 2: Raise $5B in equity

$5B raise / ($5B raise + 10B current market cap) = 33% dilution.

33% dilution isn’t that terrible, all things considered.

Option 3: Do a blend of Options 1 and 2.


All of the options above become more favorable with higher market capitalization. All of the above become less favorable with lower capitalization.

To the extent that the stock price continues to fall, it hurts Rivian’s ability to raise money. Which is why Rivian’s market capitalization can become a self fulfilling doom prophecy if it’s not buttressed soon.

 

[Epicloop]

1. Tesla didn’t deliver the Cybertruck that they promised. If they had introduced a $40K entry price for a 400 mile range as expected by some, Rivian would be in a world of hurt. Instead, the entry level RWD Cybertruck is $61K, to be delivered in two years, with an expected range of 250 miles. Also, Rivian’s R1T has better efficiency than Tesla’s Cybertruck. In some important ways, it is Tesla that is playing catch-up. Not what I expected.

There was never a 40k - 400mile CT, & the AWD CT actually over delivered on range & features (not price). Its tri-motor that was the total fail.

Overall I agree that that Rivian could be in a much worse position as far as competition is concerned. With that said I would not buy a Rivian at current pricing & the increased battery size/pricing is completely out of wack.

I really hope they succeed.

 

[240vPlug]

I believe in Rivian. I do have a stop loss but it's pretty low. This is not going to be a quick ROI. This will take a significant amount of time.

I like that they have both consumer vehicles and the EDV. I believe the executive team will be able to adapt and adjust to changing market conditions.

With that said the stock is not for everyone. Everyone has different goals, risk tolerance, etc. I understand why some folks have chosen to sell but I still believe in Rivian. In a worst case I see Rivian being acquired.

 

[R1 EVY]

Since Rivian’s last earnings report, there has been much wailing and gnashing of teeth. Clearly the sky is falling. Or is it?

You might be surprised if I reveal that I feel more positive about Rivian’s situation than I did 6 months ago. All of this is predicated on my opinion that while the ramp up of Electric Vehicles may be slower, it will still happen. Let me explain my reasoning. Rivian's situation has changed in important ways.

1. Tesla didn’t deliver the Cybertruck that they promised. If they had introduced a $40K entry price for a 400 mile range as expected by some, Rivian would be in a world of hurt. Instead, the entry level RWD Cybertruck is $61K, to be delivered in two years, with an expected range of 250 miles. Also, Rivian’s R1T has better efficiency than Tesla’s Cybertruck. In some important ways, it is Tesla that is playing catch-up. Not what I expected.

2. The reduction in demand for EVs came at exactly the right time for Rivian. Some analysts opine that a reduction in demand is bad for all vendors, IMHO this is not true.

Rivian’s competition is stepping on the brakes. Ford announced they are cutting Lightning production from 3200/wk to 1600/wk. Ford delayed the Explorer EV launch to next year, and delayed the Bronco and Maverick EVs until the early 2030s. GM is having trouble producing Ultium batteries, they have delayed the Silverado and Sierra by a year. Stellantis is late to the market, but appears to have a strong offering.

This is important because Rivian has been negotiating with vendors for the R1 refresh and R2 introduction at the same time that many of the industry’s suppliers are having orders canceled by Rivian's competition. There is a lot of excess capacity right now. Battery prices just hit record lows. Prices are roughly 25% less than in 2019. In the conference call, it was mentioned several times that contracts were renegotiated for R1 production, using R2 volumes as leverage.

During the call, they forecast flat production while still achieving a modest net profit per vehicle. This is much better than getting to break-even by primarily increasing volume. If the volume needed for break-even is lower, the profit at full production should be higher.

If your reaction to the competition pulling back is negative, read the Innovator’s Dilemma by Clayton Christensen. Large entrenched companies have a hard time dealing with change that threatens their profitable product lines.

3. A good development team pulls risk forward when possible. By introducing the updated ECU architecture and vendor changes in this year’s R1 refresh, they are completing some of the riskier parts of the R2 development while gaining some of the cost reduction benefits. They will have two years of experience with the new distributed ECU architecture when the R2 comes to market. This could be much better than the example set by the Cybertruck, where software functions like traction control are MIA.

Normally, in a product development process, the composition of the team changes as progress is made. In a big company, these exempt employees just move to another project. I think that Rivian might not be diverse enough in terms of new project development to absorb the vendor management, component qualification, and design engineers who have finished their work. None of us like layoffs, but Rivian must run a lean company. These layoffs could actually be a sign of positive progress.

This post is already longer than I intended, so I’ll stop here. I’m interested in your reactions, both positive and negative.

Thanks for the well reasoned post. The greats survive with adaptation (can control) and luck (can't control). I still believe Rivian will be just fine. Thanks for the data points supporting that position.

 

[R1 EVY]

Yes, broadly agree.

I will say there are a few reasons why market cap (less about share price) would matter.

I think Rivian needs to raise $5B in cash (and/or figure out how to reduce capex spend proportionally).

Option 1: Raise $5B in debt

Rivian’s current debt/equity ratio is $4B/$10B = 0.4.

0.4 isn’t bad. But if Rivian raised all of $5B in debt, that’ll result in $9B/$10B = 0.9 ratio. Which is bad, and that would put that debt squarely in junk territory.

Option 2: Raise $5B in equity

$5B raise / ($5B raise + 10B current market cap) = 33% dilution.

33% dilution isn’t that terrible, all things considered.

Option 3: Do a blend of Options 1 and 2.


All of the options above become more favorable with higher market capitalization. All of the above become less favorable with lower capitalization.

To the extent that the stock price continues to fall, it hurts Rivian’s ability to raise money. Which is why Rivian’s market capitalization can become a self fulfilling doom prophecy if it’s not buttressed soon.

So what do you think is going to happen with $RIVN? Will they ultimately survive, be acquired, or fail?

 

[R1 EVY]

Everyone has different goals, risk tolerance, etc.

This is the most important point IMHO. Hopefully, as a community, we can accept this difference and still be okay.

 

[DuoRivians]

So what do you think is going to happen with $RIVN? Will they ultimately survive, be acquired, or fail?

I don’t know right now, which is why I’ve sold my rivn stock (at a big loss). Once I have a good understanding of Rivian’s tangible next steps towards financial sustainability, I’ll jump back in.

 

[KCFGFE]

I'm hopeful Rivian will survive in the long run as it's built some great products and created this wholesome image of their brand. But imo short to medium term they're in a tough spot and their stock price is going to be suppressed as other companies are seriously outperforming market expectations. The opportunity cost is real and whether you're investing in rivian because you believe in the company or investing because you want to make money, well that's a big difference. And if you want to make money without having to worry about dilution, bankruptcy, or a myriad of additional risk factors then it's easy to put your money in something else other than RIVN.

 

[Hillbilly]

You make some great points. I wouldn’t necessarily say they are in a better position than 6 months ago, but it’s also not the apocalypse many are making it out to be.

I definitely agree the delays at GM/ Ford will benefit Rivian/ Kia/ Hyundai/ Tesla. They were already behind and this only puts them further behind. They know this, which is probably why they are trying to get the US to slow down on aiding the transition.

They would benefit greatly if interest rates would go down some!

Interest rates are at a healthy long term level. Need to get government spending and inflation down.

 

[COdogman]

Interest rates are at a healthy long term level. Need to get government spending and inflation down.

That is one opinion.

CPI is at roughly the same level it was in 2021 before it spiked. Supply chain issues are mostly gone and consumer demand is there. Companies that are still charging inflated prices for goods and services are doing so to increase profits.

Overall inflation is back down to levels similar to 2019/ 2020. People won't borrow when rates are as high as they have been. Think of all the folks here who put off taking delivery when they shopped around for a loan.

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