Rivian Stock Is Just About Free. Investors Shouldn’t Forget Cash.
Rivian Automotive shares are basically free, the latest evidence, if any was needed, that the stock market is hard to figure out.
Shares of the electric- truck start-up (ticker: RIVN) fell for a fourth consecutive day on Tuesday and were headed lower again on Wednesday morning. First there was the banking crisis, which hit most stocks last week. Then the market learned Monday that Rivian might end its exclusivity pact with
(AMZN), freeing up the auto maker to sell electric vans to other customers.
Shares of the electric- truck start-up (ticker: RIVN) fell for a fifth consecutive day on Wednesday. First there was the banking crisis, which hit most stocks last week. Then the market learned Monday that Rivian might end its exclusivity pact with
(AMZN), freeing up the auto maker to sell electric vans to other customers.
That hit the stock even though having access to more customers could be considered a positive.
On Tuesday, Morgan Stanley analyst Adam Jonas said inefficiencies at Rivian are weighing on profit margins.
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“When
crossed the 50,000 unit milestone (2015) it earned a positive 21.3% gross margin (ex regulatory credits),” wrote Jonas. “Rivian targets 50,000 units of production this year, but we estimate a negative 68% gross margin with nearly two times the [capital spending] plus operating expenses.”
He believes a majority of investors want to see better cost discipline. Jonas rates Rivian shares at Buy and has a target of $26 for the price.
On Wednesday, Rivian stock traded as low as $12.80 as the
and
lost ground . Shares closed off 1.4% at $13.03, an interesting price given the amount of stock Rivian has issued. The company ended 2022 with about $12 billion in cash on its balance sheet, or $13.03 a share.
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That theoretical calculation means the shares are essentially free, although investors should remember that Rivian doesn’t generate positive free cash flow and is spending to grow its business.
Still,
(LCID) stock was trading at roughly $7 a share net of cash. That makes
‘s enterprise value, which is essentially the market capitalization plus debt, minus cash, roughly $13 billion. Rivian’s is close to zero even though Rivian is actually larger than Lucid, selling more vehicles and generating more sales.
Rivian is expected to deliver about 50,000 vehicles in 2023, which could bring in $4.1 billion in sales. Lucid is expected to deliver about 12,000 vehicles for a total of $1.3 billion.
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It’s tough to explain the valuation difference between the two EV start-ups. “That’s a good question,” said Battle Road Research analyst Ben Rose when asked to explain it.
He offered a couple of potential reasons, but said neither is convincing.
First, while the market might have more confidence in Lucid’s market position, Rose has doubts about whether Lucid can achieve the production it has forecast for 2023. What is more, he said, demand for trucks, Rivian’s focus, is bigger than for the high-end luxury sedans Lucid makes.
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Second, Rose says, Saudi investment funds, which own the majority of Lucid, could bail out the business if it runs into trouble. But any injection of cash would likely require the company to issue stock in exchange, diluting the value of shareholders’ existing holdings.
Rose rates Rivian shares at Hold. He doesn’t have a target for the price.
Investors can’t access Rivian’s cash, but the situation is still odd. How it will work out is anyone’s guess.
Write to Al Root at allen.root@dowjones.com
