Fundamental Analysis of Rivian: The Next Tesla?

Key points of Fundamental Analysis of Rivian:

  1. Unlike other EV makers, Rivian has a durable competitive advantage with Amazon on its side. But we don’t know how much this edge contributes to Rivian’s revenue.
  2. We are still curious about how Rivian will transform in the future. Will it be Amazon’s arm for delivery or become an EV maker that specializes in SUVs?
  3. Conservative management, we like it. Low debt, and a high amount of cash – may be due to part of the Amazon deal and other investments. Unlike the other start-up.
  4. The business model has not yet been proven.

A Prime EV, The Tesla of Amazon:
Fundamental analysis of Rivian from a competitive advantage perspective.

EV competition will surely heat up – Tesla will get challenged by another carmaker. Both by the conventional or EV pure player. Rivian is slightly different. The deal with Amazon secures the demand for its EV.

From Amazon’s perspective, investing in Rivian is a smart strategy. Sooner or later, the Federal government will force the adoption of EVs to combat carbon pollution. By having Rivian, Amazon could reduce transportation costs and at the same time prepare for all EV policies in the future.

So in terms of eCommerce, Amazon is supported by its own AWS, has its own facility by acquiring Whole Foods (long way to go actually), and has Rivian as its delivery transportation. Overpower.

From the Rivian perspective, Amazon’s investment not only secures the sales but also gives them a kick-start to ramp up production. And it matters a lot. A large capital could help small companies to meet economies of scale soon.

The Deal is in the detail

However, we don’t know how much the Amazon deal contributes to Rivian revenue. This vital information is difficult to seek. This point makes us have little doubt about investing in Rivian. If we treat Rivian as an EV pure player, it seems that the R1 maker has no competitive advantage – it is just an electrical SUV. Another carmaker could create it. If we are the Rivian investor, we will hope that Rivian focus on becoming Amazon’s tool rather than a stand-alone. The auto competition is harsh.

Financial Highlight, Economies of Scale Not Yet Achieved
Fundamental analysis of Rivian from a financial perspective.

In our Tesla analysis, we cover that Tesla has broken the code. It achieves economies of scale and begins to deliver positive earnings. Rivian is not there yet.

Income Statement

Till Q2 2022, Rivian still can’t achieve positive earnings. The Irvine-based company delivers $364 million in revenue but is capped easily by the COGS(1) with $1 billion – dragging it to the negative earning territory.

Furthermore, if we look at its Research and Development budget, we know that Rivian is far from its first positive earnings. The R&D budget keeps growing, indicating that the EV maker is still in the experimenting phase. In Q2 2022, the R&D budget is $543 million – far exceeding the revenue. Rivian needs to scale up quickly before competitors can catch up. In Q2 2022, Rivian could produce 4,400 vehicles.

Rivian will face complex problems like an expert, labor needs, and the chips to ramp up. The chip supplier will prioritize a large company like Tesla or Toyota due to more demand. But we predict that somehow Amazon will figure it out.

  1. COGS – Cost of Goods Sold, in the Rivian case, is the cost to produce the whole Rivian EV. By increasing the output, RIvian hopes the percentage of COGS decreases.

Balance Sheet and Cash Flow

Step to the balance sheet, the company has plenty of cash which is due to investments from another party. Also, it has low debt. There are two perspectives to look at these circumstances. First, the management is conservative: not outspending what the company does not need, careful to make investments and business decisions. Another start-up will aggressively spend to build a large base of consumers.

The other point of view is Rivian lack of opportunity. We need to consider this possibility. We are in wait-and-see mode.

Rivian also has a negative CFO – something that confirms its negative earnings.

source: pxhere

Management Highlight, Same Old
Fundamental analysis of Rivian from a management stewardship perspective.

In negative earnings, Rivian could not pay the dividend. It also has no intention to repurchase its share. So shareholders get nothing.

The problem is Board of Director get a high bonus (as stock). In Q2 2022, the Stock-Based compensation (SBC) is $559 million. How could management that is only capable of delivering $364 million in revenue get a bonus of $554 million?

The competitive edge makes us doubt buying.

The economies of scale make us question.

The management makes us sure. We are not ” buy”