Don’t Expect a Tesla 2.0 From Rivian’s Stock

But
there’s
one
brand
attempting
to
dislodge
Ford’s
dominance
with
a
green
alternative.

Founded
by
chief
executive
Robert
Joseph
Scaringe,
Rivian
is
the
electric
vehicle
manufacturer
focused
on
revolutionising
what
Scaringe
says
is
“the
least
efficient
vehicle
on
the
road”.
Referencing
the
“gorpcore”
clothing
brand
beloved
of
urban
millennials,
he
describes
Rivian
as
the
Patagonia
of
pick-up
trucks:
luxury
adventure
vehicle;
good
for
the
environment.
This
is
a
compelling
story.
But
investors
may
not
feel
so
confident.

Did
Rivian
Stock
Float
via
a
SPAC?

Rivian
has
struggled
to
meet
investor
expectations
since
its
exuberant
floatation
on
the
NASDAQ
in
November
2021.
Initially
priced
by
the
company
at
$78
(£61.51) Rivian
opened
at
$129.95.
But
shares
in
the
company
are
now
priced
at
$15.29.
What’s
more,
the
company
is
yet
to
produce
a
profit.

According
to
data
from
Morningstar
Pitchbook, at
September
2023
the
EV
maker’s
net
income
margin
was
down
by
over
$4.9
million,
producing a
net
profit
margin
of
-148.97%.

Rivian
does,
however,
have
big
institutional
firepower
backing
it.

Morningstar
data
also
shows
Rivian
in
Baillie
Gifford’s US
Growth
Trust,
American
Fund,
and
the UK and
Worldwide
Equity
fund
at
0.27%, 0.36%,
and
0.04%
respectively.

Ben
James,
investment
director
and
US
equities
specialist
at
Baillie
Gifford,
backs
Rivian
because of its
long-term
growth
expectations.

“What
attracts
us
to
Rivian
stock
firstly
is
that
exposure
to
this
long-term
structural
change
in
society
away
from
the
internal
combustion
engine
towards
electrification,”
James
tells
Morningstar
UK.

“The
culture –
that
is an
important thing
for
us
in
our
portfolio – with
RJ
Scaringe you
have
got
someone
who
is
quite
special
and
who
has
built a
very
strong team
around
him.”

James
also
believes
Rivian’s
boss
is the
real
deal and
is on
a
personal
mission
to
decarbonise
mobility.
He
studied
for
a
doctorate
at
the
Massachusetts
Institute
of
Technology,
before
setting
Rivian
up
in
2009
after
the
global
financial
crisis. 

He argues
Rivian
is
building
a
strong
brand
for
itself with
a
Net
Promoter
Score
(a
customer
experience
metric)
of
23
–
above
FedEx
(FDX),
but
just
below
EV
rival
Tesla
(TSLA).

Seth
Goldstein,
Morningstar
equity
market
strategist
and
chair
of
its
electric
vehicle
(EV)
committee,
meanwhile,
is
confident
about
US
EV
proliferation
overall.

“EV
sales
grew
at
roughly
50%
in
the
US
in
2023,”
he
says.

“We
think
EV
sales
will
continue
to
grow,
driven
by
the
$7,500
tax
credit
now
applicable
upfront
and
taken
off
the
purchase
price,
despite
fewer
models
qualifying.

“We
also
point
to
the
buildout
of
more
EV
chargers
as
a
catalyst
for
growth,
which
will
reduce
[the]
road
trip
anxiety
that
holds
some
consumers
back
from
buying
EVs.”

What
Goldstein
is
less
enthused
by
is
the
special
purpose
acquisition
company,
or
SPAC.
A
real
talking
point
in
2021,
this
type
of
investment
vehicle
has

failed
to
really
garner
the
long-term
attention
of
retail
investors,
some
of
whom
were
interested
in
garnering
exposure
to
EV
companies
via
the
investment
vehicle.

In
Morningstar’s
2021

EV
Observer
report,
Goldstein
argued
SPAC
use
by
retail
investor
was
too
risky
because
of
the
sheer
amount
of
time
needed
to
benefit
from
profitability.

“Investors
may
not benefit from
growing
EV
sales
through
a
SPAC,
as
these
firms
carry
company-specific
risks
that
could ultimately
outweigh their
pure-play
exposure
to
EVs,”
he
said
in
June
2021.

Lucky,
then,
that
Rivian
pursued
a
traditional
(and
arguably
more
transparent)
floatation.

‘I
Quit
Rivian
Stock
–
Here’s
Why’

Risks
remain.
Goldstein
still
believes
there
are
persistent
barriers
to
entry remain
deterring
consumers
from
buying
Rivian’s
products.

“When
you
look
at
Rivian
trucks
they
start
at
the
high
end,”
he
says.

“So, you
look
at
the
truck
market
and
there
are
affordable
trucks
and
then
there
are
luxury
trucks.
Rivian
is
a
luxury
truck.
So
right
there
you
have
a
smaller
total
addressable
market
of consumers that would be
interested
and
able
to
afford Rivian.”

The
starting
price
for
Rivian’s
flagship
R1T
is
$73,000,
which
places
it
at
a
price
disadvantage
to
more
affordable
brands
selling
at
$40,000
to
$50,000. He
also
points
to
the
lack
of
charging
infrastructure
throughout
much
of
the
US –
especially
in
rural
areas
dependent
on
reliable
off-road
vehicle
or
SUV
use.

“Unfortunately
in
the
US
[…]
chargers
tend
to
be
located
on
the
East
and
West
coast
closer
to
major
city
locations
where
you
might
see
less
demand
for
trucks,”
Goldstein
says.

Rivian
has
made
obvious
efforts
to
address
this.
According
to
Eric
Clark,
portfolio
manager
of
AccuvestGlobal
Advisor’s
Alpha
Brands
Core
Equity
fund,
Rivian’s
new
manufacturing
plant
in
Atlanta,
Georgia,
will
help
it
produce
more
vehicles
at
more
attractive
prices.

“When
Tesla
[TSLA]
was
just
kind
of
doing
nothing
and
then
all
of
a
sudden
its
profitability
went
sky
high
[that
was]
because
they
really
ramped
up
production
of
the
model
3
and
model
Y.
That
was
where
consumers really
wanted
to
be,” Clark
says.  

He
believes
that,
if
Rivian
emulates
the
tactic
it
may
also
achieve
similar
levels
of
profitability.

But
he
doesn’t
believe
it
enough
to
have
stuck
around,
however.
Clark
recently
sold
out
of
the
company
amid
the
higher
interest
rate
environment. 

“The
problem
is
Rivian
is
doing
it
with
a
much
higher
cost
of
capital
than
Tesla”,
he
says.

“Tesla
had
the
benefit
of
zero
interest
rates, whereas Rivian
is
not
going
to
have
that
benefit.
It
is
going
to
cost
a
lot
more
to
reach
scale.

“I
am
not
sure
why
people
would
have
an
appetite
for
a
stock
that,
in
a
world
where
quality
business
metrics
profitability
is
really
where
money
is
flowing,
profitless
speculative
growth
is
not
where
money
is
going
right
now”.

Furthermore,
Clark
believes
much
of
the
EV
market
has
already
been
tapped
into.
Already
suspicious
of
EVs,
the
general
consumer
may
want
to
take
their
tentative
first
drive
in
a
hybrid
rather
than
an
EV.
He
is
therefore
surprised
a
pure
hybrid
brand
has
not
been
launched
to
US
consumers
to
provide
them
with
the
optionality
of
using
both
gas
and
electric –
especially
given
the
constraints
around
charging
infrastructure.

‘I’m
Still
in
Rivian
Stock
–
Here’s
Why’

Baillie
Gifford’s
James
is
keeping
the
faith.
He
believes
the
stock
is
trading
at
a
particularly
attractive
valuation
and
that
all
roads
lead
to
momentous
growth,
and
thus
a
strong
return.

“Americans
buy
pickup
trucks
in
the
hundreds
of
thousands –
if
not
millions,”
he
says.

“So
culturally
it
is very
different to
Europe
so
the
market
that
Rivian
is
going
after
is
massive.
There
is
enough
room
in
the
next
five
years
for
it
to
grow
into
the
average
sale
price
of
$50,000.”

James
is
also
bullish
on
the
company’s
potential
to
gain
popularity
across
the
US’s
bipartisan
divide.
In
time,
it
could
appeal
to
both
coastal
Democrats
as
well
as
Republicans
living
in
rural
areas
more
wedded
to
the
combustion
engine.

The
one
person
who
is
all
in,
however,
is
Scaringe.
For
him,
there
is
no
reverse
gear.
Having
spent
his
life’s
work
(so
far)
in
physically
building
the
EV
consensus,
pivoting
to
a
hybrid
model
would
probably
be
a
compromise
too
far.

For
now,
it
looks
like
Rivian
is
staying
in
its
lane.

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