Why Rivian’s market capitalization dropped to $ 53 billion in just three months?
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In an article I published few days ago — What makes Rivian valued at more than $130 billion upon listing. This article focus on explaining why market would give a crazy valuation. After 3 months from listing, I guess there are many traders who are in deep losses if they are buying Rivian at such a high price. As per today, the share price of Rivian is $58, which translated to only $53 billion market capitalization. 62% loss from the peak as of today. It is a huge pain.
Therefore, I just wanted to summarize few points why Rivian would drop eventually but it still have such potential to go back its peak or even higher.
Rivian was influenced by internal and external factors. I would summarize these into four factors: (1) Net loss further increased; (2) Chief Operating Officer Rod Copes announced his departure; (3) Failure to meet its 2021 mass production delivery target of 1,200 vehicles (only 920 vehicles were actually delivered); (4) Key owner and major customer — Amazon turns to its rival — Stellantis NV on purchasing EVs.
From being welcomed by capital to the sharp decline in share price, the question is really whether Rivian can still be able to return to its former peak?
Production capacity is the key!
The popularity of the capital market only lasted for 5 days. Rivian’s stock price soared to a high of $179.47 one after another and returned to rationality under the general trend of the sector’s correction and continued to decline.
On December 16, 2021, Rivian’s first financial report released one month after its listing brought a heavy blow. The Q3 quarter shown in a huge net loss of US$1.233 billion, a year-on-year increase of 328%. The revenue of US$1 million seems to be a drop in the bucket.
Continued losses include continued growth in Rivian’s R&D and operating costs. According to the financial report, Rivian’s R&D-related expenses increased by $221 million year-on-year, including a $93 million increase in salary and a $77 million increase in design R&D expenses.
On the 17th, Rivian’s stock price fell as much as 10% to $97.7, and its market value was close to “halving” down nearly $60 billion.
On the one hand, the capital market is cold. On the other hand, Rivian, which has just been listed, has encountered limited production capacity. The Q3 quarterly financial report shows that due to supply chain constraints, mainly due to the possible shortage of key semiconductor chip components, Rivian is “slightly short of its goal of producing 1,200 vehicles in 2021.
It is worth noting that the global core shortage is a common phenomenon in the industry. Market analyst said that the global chip shortage is one of the biggest challenges facing the auto industry this year. Cars need a lot of chips to control various functions such as brakes and electric devices. With increased functionality and a growing reliance on chips for electric vehicles, the coronavirus is likely to continue to pose a threat to the industry this year.
It is reported that Rivian’s re-launched electric pickup R1T and electric SUV R1S have a total of 71,000 pre-orders in the United States and Canada. In the face of a considerable number of orders, the factory’s production capacity is insufficient. At present, Rivian has only one factory in Illinois, USA, which is expected to have a production capacity of about 150,000 vehicles in 2023.
In response to the capacity crisis, Rivian announced that it will build a second factory in Georgia, which is expected to start construction in the summer of 2022 and put into production in 2024, with a design capacity of 400,000 vehicles per year and an investment of about $5 billion.
The construction of factories can solve the capacity crisis in the future, but it is foreseeable that Rivian will continue to invest and lose money in the short term. How high will the market tolerate it? This can be seen from Tesla, which was on the verge of bankruptcy in 2018. In Q1 2017, Tesla’s weekly production capacity was only about 2,000 vehicles, which was far from meeting the expected 5,000 vehicles weekly production capacity of huge orders. Insufficient production capacity, intensified losses, and institutions sold Tesla shares in large numbers.
Musk, who has been in the past, has repeatedly said that Rivian’s valuation is too high and reminded it to pay attention to production capacity issues. “Rivian should deliver at least one car for every $1 billion in its valuation before its IPO.” “I hope Rivian can achieve mass production and positive cash flow, which is the real test for the company.”
“Silicon Valley Iron Man” Musk personally stationed in the factory, and it took more than a year to solve some of Tesla’s production capacity problems. How the founder of Rivian, Dr. RJ Scaringe, will escape the production capacity issue. The market is taking wait-and-see approach.
Amazon turns to purchase EVs from its rival
It can be said that Rivian’s high valuation and prosperity are inseparable from the support of the gold owner Amazon and the endorsement of the order form for 100,000 electric delivery vehicles.
Last week, Amazon, one of Rivian’s biggest investors, announced it would buy electric delivery vans from rival Stellantis NV, which Stellantis also said was a “significant number.” Although Amazon said in a statement, “We remain excited about our partnership with Rivian, which will not change our investments, partnerships, order sizes and timing.” However, immediately after this news, Rivian’s shares plummeted below the $78 IPO price at $75.13.
COO departure
On 12th January 2022, Chief Operating Officer Rod Copes, who has been with Rivian since March 2020, announced his departure. The company statement said that Rod began to gradually change from a few months ago to ensure continuity of the company team as we gradually ramped up production, and his responsibilities were assigned to the entire leadership team.
Delivery issue
In addition, Rivian’s 2021 delivery numbers have also been settled, with 1,015 vehicles produced and 920 delivered, not far from the goal of producing 1,200 vehicles in 2021.
Multiple bad news came out one after another, and Rivian stock was sold off heavily during the trading session. The turn of the gold master Amazon has exacerbated the slump in Rivian’s stock price in recent days, but from the company level, the calm of capital is still based on Rivian’s poor financial report and production capacity performance.
On the market side, Rivian’s first-mover advantage is also dwindling, with legacy automakers set to launch a wave of new electric models this year, including Ford Motor Co., which plans to start selling an electric version of its F-150 pickup this spring, and General Motors Motor Co. last week. has revealed a new electric version of its Silverado pickup, expected to debut in 2023.
Under the background of internal and external factors, Rivian’s top priority is to increase production capacity as soon as possible while avoiding further expansion of losses in the context of chip shortage.
Thank you.
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