3 Reasons Rivian Might Be A Great Buy Now

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Few stocks capture the imagination of the market and get carried away like Rivien (NASDAQ: RIVN), the electric vehicle (EV) start-up that only recently started generating revenue. The shares have more than doubled from the IPO price of $ 78 per share, but have now fallen sharply from their highs.

Those who question Rivian’s valuation seem to be in control of the market today, and there are certainly a lot of questions this manufacturer faces. But there’s also a lot to like, and there are three big reasons I think Rivian might not be a bad buy today.

RIVN data by YCharts

Rivian disrupts in the right places

I think one of the most disruptive aspects of by Tesla (NASDAQ: TSLA) business model compared to General Motors (NYSE: GM), Ford (NYSE: F), Where Toyota‘s (NYSE: TM) is that Tesla owns the dealer and service network. This allows the business to reach customers directly, controlling prices and the sales experience. It also means Tesla keeps the margin that usually goes to dealers. That’s not the only reason Tesla has better margins than mainstream automakers, but it’s one of the reasons, and Rivian is copying the model.

TSLA Gross Profit Margin Chart

TSLA gross profit data by YCharts

Rivian is also entering a high margin market that has not been touched by electric vehicles – trucks and SUVs. Tesla has made crossovers, but so far no one has launched a real truck or SUV that can comfortably seat seven people with luggage room in the back. Trucks and SUVs are generally the most profitable vehicles sold by automakers, so disrupting this market could be a high margin opportunity for Rivian.

Rivian also serves a very niche market of people who want to think outside the box or at least own a vehicle that makes them feel like they are. That’s why the company’s waypoint chargers for thousands of locations in the US and Canada should be a differentiator. Some charging stations will be in hotel and restaurant parking lots, but many will be in parks. The planned waypoint loader map shows the company is focused on the difficult areas of the Rocky Mountains and Appalachian Hills, not just highways across the country.

Rivian's R1S sport utility vehicle parked in a driveway.

Image source: Rivien

A foundation to build on

Despite the fact that Rivian generated almost no sales and is in the early stages of production, the company has an excellent order base to build on. Amazon ordered 100,000 delivery trucks, and there were over 50,000 pre-orders of R1T trucks and R1S SUVs before the Rivian ad even went public on November 10.

The company also built a very scalable design that could result in more products. The R1 platform is the basis of the R1T and R1S, but the RCV, or Rivian Commercial Vehicle, platform is the basis of the Amazon delivery vehicle. And RCV vehicles will also have the FleetOS option, a set of features to manage a fleet of commercial vehicles. In the S-1 file with the SEC, Rivian said:

Over the next few years, we intend to launch several vehicles in the consumer and commercial segments. These vehicles will serve a variety of form factors, pricing, use cases, and geographies. We intend to use our existing R1 and RCV platforms and develop new platforms to support our diverse product portfolio of vehicles. We anticipate that the high degree of modularity and flexibility of our platforms will result in lower costs and faster product development cycles, thereby reducing time to market.

In short, the platforms make it easy to add consumer and commercial vehicles to the lineup, so we should expect a steady cadence of new vehicles once production goes into production.

Brand awareness is improving rapidly

A few weeks ago, the awareness of the Rivian brand was quite limited to people who follow electric vehicles closely. According to Google Trends, search interest for the word “Rivian” was 1 / 20th of the volume for search interest “Tesla” during the last week of October. In the past two weeks, the search volume for “Rivian” has exceeded half of the searches for “Tesla”.

One of the main reasons for Tesla’s success is the marketing power of Tesla and Elon Musk. The company does not spend any money on advertising but can generate billions of dollars in revenue due to its brand awareness. Rivian is not here yet, but he is sufficiently aware that he is not likely to spend any money on marketing in the near future. This is a good sign for an EV start-up.

Reasons to love Rivian stocks today

There are many reasons to question the Rivian share price today. The company has not proven that it has the ability to build vehicles on a large scale or profitably. And we don’t know how quickly the business will be able to expand into new factories or new vehicles.

But there is also a bullish side to the story. Rivian is building a business model that disrupts all the right places in the automotive business, has platforms to lean on, and builds a formidable brand. Don’t overlook the importance of these factors in building a great long-term business, as this is largely the same playbook Tesla used for a decade. But instead of paving the road itself, the company has learned from Tesla’s victories and mistakes.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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