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Rivian is aiming for a valuation of $ 64 billion. Here’s why it’s not crazy.

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Investors should consider what Rivian’s long-term market share will be.

Courtesy of Rivian

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Electric truck manufacturer


Rivien Automobile
should be made public next week at a market value that could exceed that of


Honda engine

despite the fact that he only sold a handful of vehicles. But it’s not as crazy as it sounds. Depending on where the stock opens, it may even be worth the price.

For many, a market cap of around $ 64 billion doesn’t make sense. The company has essentially no sales and no manufacturing experience. What he has are powerful funders—


Ford engine

(symbol: F) and


Amazon.com

(AMZN) —and a lot of expense. The company spent some $ 1.6 billion in the first half of 2021 to prepare its vehicles and build its manufacturing facility in Normal, Illinois. Honda (HMC), by comparison, sells about five million cars a year, with sales of around $ 130 billion.

This does not prevent Rivian (RIVN) from aiming high. The company is looking to sell 135 million shares at a price of $ 72 to $ 74 per share, according to its latest filing with the Securities and Exchange Commission, raising around $ 10 billion. At $ 73 a share, Rivian stock would be worth around $ 64 billion based on 882 million shares outstanding once the deal is closed.

Some think the rating is ridiculous. It makes “no sense,” says David Trainer, CEO of investment research firm New Constructs. “Despite the popularity of the electric vehicle market and huge gains in [


Tesla

(TSLA)], we believe investors should avoid the temptation to buy Rivian shares. “

But a dive into math suggests the assessment isn’t as crazy as it sounds. Many trucks and sport utility vehicles are sold in the United States. About half of all new vehicle sales are SUVs and 20% are pickup trucks. In a normal, non-pandemic year, that’s about nine million SUVs and four million trucks.

Rivian’s first product, the R1T, is a


Toyota engine

(TM) Tacoma size pickup. Rivian’s second vehicle is an SUV dubbed R1S. At 200,000 units per year, enough to fill its current facilities, Rivian would have about 1.5% of SUV and truck sales in the United States. Rivian also already has a buyer for its electric utility vehicles: Amazon, which has ordered 100,000.

“The big question now [is] who will be the n ° 2 in electric vehicles? Asks Gary Black, managing partner of Future Fund Active exchange-traded fund. “My bet would be Rivian, given the huge addressable market for pickups and SUVs.”

More importantly, Rivian’s long-term market share. If electric vehicles capture 20% of the United States by 2025 – in line with what traditional automakers are aiming for – and Rivian makes half as much as Tesla, it could sell 800,000 units per year, generating gross profits of up to $ 14 billion. A valuation of $ 51 billion, net of cash, would leave Rivian trading at 3.6 times gross profit, slightly higher than Ford.

This is a very optimistic production ramp and valuation. Still, it shows that investors shouldn’t fire the company just because it looks expensive. And with Rivian expected to have around $ 13 billion in cash after the offer, he will have the cash he needs to make his dream come true.

Oh, and his truck is very good looking too.

Write to Al Root at [email protected]


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