VALUE: After Hours (S08 E12): Why Rivian Could Be Worth FAR More Than $15 Billion

During their recent episode, Taylor, Carlisle, and Charles Lemonides discussed Why Rivian Could Be Worth FAR More Than $15 Billion. Here’s an excerpt from the episode:

[Charles] Yeah, yeah, it is. Look, they’re about a billion shares outstanding. It trades in the mid-teens.

So you’re paying $15 billion or so to control that enterprise. And the question is, you know, what is it worth? They’re selling 50,000 cars a year right now, generating $5 billion worth of sales.

That’s not worth more than $15 billion, more likely than not. So why do we think there’s more value than that there? And it comes from our premise that EVs are the future.

You know, electric powered cars are more efficient than internal combustion engines. And that’s where the world is going. And if that’s true, standalone EV makers have an advantage over the incumbents because the incumbents have to defend a losing proposition.

Rivian is highly likely to be one of only two standalone EV makers in the U.S. You know, Tesla has market share and scale and Tesla is not going out of business anytime soon. Tesla is going to be around in a standalone EV maker. But Rivian at $5 billion in sales is three times the size of the next one on the list.

And it’s super important to a car buyer to have confidence that their company is going to be around because, you know, you separate yourself from $100,000 or $50,000 to buy one of these premium cars. And if the manufacturer goes out of business, as a whole bunch of them have, you know, then you can’t change a headlight. You can’t fix a fender if it gets dented.

Your investment is at risk like on day one. So I think Rivian is in a place where there’s confidence they’ll be around. Look, they’re backed by Amazon as a significant investor.

They have a super solid balance sheet. They’re probably profitable this year or at least run rate profitable soon. And more importantly, and they’ve built a brand recognition that is very, very important and a distribution network that is hard to replicate.

You know, the incumbent automakers have a couple of disadvantages. One, they’re defending the internal combustion engine and two, they have a dealer network that they rely on that they have to push their cars through. Tesla and Rivian sell their cars directly and don’t have those middlemen taking an important part of the profits.

The knock on Rivian is that they’ve been at 50,000 cars a year for three, four years. And look, their car that they’re selling has a market of 50,000 cars a year. Like, you know, they’re competing with BMWs and Mercedes and that high end luxury SUV market and 50,000 run rate for those vehicles is great.

It’s plenty of market share. Why we’re optimistic about the near future for Rivian is because for the past three, five years, they’ve been developing a midsize model that’s more like $50,000 price point. And it is rolling off the production lines right now.

They’re planning on having sales in the second quarter, which starts in 12 hours from now or 15 hours from now, depending upon what time zone you’re in. So that’s massive upside in terms of their addressable market. You know, the market for $50,000 SUVs is, you know, potentially a million units a year.

They’re in a position where they’re going to be able to build 250, 350,000, not in 27, but surely in 28 and 29 and then go in a half a million. And that gives you a real revenue base that more than justifies your 15 ish billion dollars that you’re paying for them today. They also have the best technology going as evidenced by the fact that Volkswagen put a couple of billion dollars into them in order to get access to their EV technology, which is a wide ranging set of technological tools.

I mean, it’s not just making the car, it’s not just the systems on the car, but it’s all the telematics and all the smart driving and self driving and automation that happens. And so they’ve got the best technology going. They’ve got a well established brand name.

So how is it? And they could be doing, you know, 15 billion in sales in two years from now, which is, you know, if you get maybe three or four years, but, you know, you’re at five now. So you go from five to 15, it’s not hard to see how you get valued at two or four times sales.

And it makes sense that they’ll have a long trajectory because of their competitive position. And look, they have been at it for a long time and they’ve spent a lot of money to build this operation. They’ve invested almost $40 billion, $35 billion for sure to get what they have today.

And what they have today is cash and they have technology and they have factories. And some of that stuff is tangible and on the balance sheet, but most of it has been expensed, but it costs them $35 billion to be where they are today. It’ll cost someone else that much money and then some to be there in the future.

So I’m getting their $35 billion investment for $15 billion at a place where the revenue trajectory is about to torque. And the market acceptance is because they’re going to, you know, a $50,000 vehicle has a lot more potential consumers than the $100,000 vehicle that I drive.

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VALUE: After Hours (S08 E12): Why Rivian Could Be Worth FAR More Than $15 Billion

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