Is Rivian on Track to Be the Next Tesla?
Sunday, November 28, 2021 | Chimniii Desk
Key Highlights
- Whether you're an industry observer or a casual investor, it's been difficult to ignore the coverage of Rivian Automotive, an up-and-coming electric vehicle (EV) maker.
- It launched the R1T pickup vehicle in September and aims to launch the R1S SUV in December.
- Rivian's manufacturing plant in Illinois.
- Finally, Rivian is well-funded.
- Rivian has $3.56 billion in cash on hand prior to its IPO from earlier investment rounds.
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Whether you're an industry observer or a casual investor, it's been difficult to ignore the coverage of Rivian Automotive, an up-and-coming electric vehicle (EV) maker (NASDAQ:RIVN). From shattering initial public offering (IPO) records to reaching a peak valuation of more than $150 billion (more than General Motors, Ford, or even Starbucks), Rivian exemplifies an optimistic and imaginative mentality.
However, hope and wishful thinking do not get you very far in the world of investment. For a growth storey to properly unfold, a company must demonstrate the ability to acquire market share, design a route to profitability, and demonstrate its mettle in difficult times. Whether you like it or not, Tesla (NASDAQ:TSLA) possesses these characteristics in spades.
Let's find out if Rivian has what it takes to succeed Tesla.
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IMAGE SOURCE: RIVIAN AUTOMOTIVE.
Tesla's success formula
Tesla is officially a $1 trillion company, making it the world's most valuable automaker. However, just a few years ago, Tesla was battling to maintain profitability and was rapidly running out of cash due to what CEO Elon Musk dubbed "production hell."
Tesla now boasts one of the industry's greatest gross profit margins, owing to extremely profitable automobiles, vertically integrated manufacturing, and distribution management.
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To summarise, Tesla's success is due to the following:
- Brand recognition on a global scale reduces the necessity for advertising.
- Its own fast-charging network, which currently numbers more than 30,000 Superchargers.
- Vehicles that are technologically better at an affordable price point for both the consumer and Tesla.
- Direct-to-consumer marketing that eliminates the need for third-party franchisees while increasing margins.
- Stable and expanding demand justifies the expansion of Gigafactories in China, Germany, and Texas.
- Without a doubt, Tesla is the undisputed leader in the shift from internal combustion engines to electric motors.
- Low debt and a good cash flow from operations.
Rivian's strategic orientation
When one considers the factors that contributed to Tesla's success, it becomes clear that replicating or even coming close to the electric car firm will be a difficult job. However, Rivian has a lot going for it.
To begin, it's a cost-effective way to increase brand recognition without spending money on advertising. Rivian's Twitter account has not published a single post since its first public offering. Its press room has been deafeningly silent. And yet, its narrative is spreading like wildfire on internet forums and in mainstream media.
In terms of manufacturing, the company's S-1 filing with the Securities and Exchange Commission indicates that its Normal Factory in Illinois has a capacity of 150,000 units per year.
It launched the R1T pickup vehicle in September and aims to launch the R1S SUV in December. It had 48,390 reservations for the R1T and R1S as of Sept. 30, but that number has since risen to almost 55,000. Additionally, Amazon — which owns a 20% investment in Rivian — has placed 100,000 orders for its RCV delivery van.
Rivian, like Tesla, manufactures its battery cells in-house to maintain control over as much of the production process as possible. However, the company stated that it is reliant on a number of suppliers for parts and components, which is the primary reason it is behind on client deliveries.
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RIVIAN'S MANUFACTURING PLANT IN ILLINOIS. IMAGE SOURCE: RIVIAN AUTOMOTIVE.
Regarding product distinction, Rivian's R1T and R1S are competitively priced, starting at less than $70,000. A totally electric pickup truck designed for the outdoors and a fully electric seven-seat SUV are uncommon EV exploits. Rivian undoubtedly has an advantage over the competitors in this area.
Rivian is developing the Rivian Adventure Network to fulfil the charging demands of its adventurous customers by providing charging capabilities from parks to isolated regions that would otherwise be inaccessible. As with Tesla, it is opting for direct-to-consumer sales.
Finally, Rivian is well-funded. Rivian has $3.56 billion in cash on hand prior to its IPO from earlier investment rounds. The corporation is currently projected to have somewhere in the neighbourhood of $12 billion in cash.
Even if Rivian takes years to become profitability, it should have no difficulty raising additional capital. Unlike in the past, when the majority of Wall Street believed Tesla would fail, EV firms now benefit from low lending rates and an expanding pool of interested investors.
As long as Rivian continues to demonstrate production improvement and maintains a competitive edge, cash flow should be the least of its concerns.
Is Rivian up to the task?
Tesla and Rivian are strikingly similar on the surface. Rivian is closely following Tesla's blueprint and creating the framework for emulating Tesla's success pillars.
If Rivian demonstrates its manufacturing prowess and is able to meet client demand in 2022, it will achieve a comparable milestone as Lucid Group (NASDAQ:LCID). In many ways, the ability to keep commitments is what eventually earns investor trust and bridges the divide between rookies and a seasoned veteran like Tesla.
Rivian, like a college candidate vying to be the next LeBron James, possesses the potential to be the next Tesla. However, it must first reach the NBA (deliver vehicles) before we can have a meaningful discussion about it.
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