Before electric SUV and pickup truck manufacturer Rivian (Nasdaq: RIVN) went public in November 2021, I delivered a very clear message…
I said, “Buying Rivian shares at this proposed valuation must surely be considered speculation, and I wouldn’t call it a smart play.”
In other words, stay far, far away!
It wasn’t that I didn’t like Rivian’s products. In fact, I thought (and still think) that its electric SUVs and pickup trucks were extremely cool.
My problem was with the company’s stock market valuation. I thought it was ludicrously high.
At that time, Rivian not only had never turned a profit but also had never even earned any revenue!
Not a dime!
Despite that, Rivian was targeting an initial valuation of close to $80 billion.
The hype around Rivian going public had created a nonsensical stock market valuation.
Since then, the hype has lessened, common sense has taken over and Rivian’s stock has collapsed by almost 90%.
Because in the stock market, valuation does matter eventually.
But now something interesting has happened.
Rivian’s total stock market valuation is now almost equal to the amount of cash that the company has on its balance sheet.
At the end of 2022, Rivian was sitting on $12 billion in cash, which equates to just over $13 per share.
Meanwhile, Rivian shares now trade for just $13.49 as of this writing.
This means that anyone buying shares of Rivian today is paying $13 for cash that the company has and only $0.49 for the Rivian electric vehicle (EV) business, worth roughly $1.7 billion.
That $1.7 billion valuation is pretty wild considering that investors were willing to pay $115 more per share for this same business in 2021.
The question now is whether paying just $13.49 for a share of Rivian’s $1.7 billion electric car business is a good deal.
This year, the company is expecting to sell 50,000 vehicles in total.
The consensus analyst estimate is for that level of sales to result in almost $4 billion of revenue. That’s good.
What’s not so good is that Rivian won’t even be close to turning a profit while selling those vehicles and it will burn through a lot of cash.
One analyst expects Rivian’s gross margins from selling its vehicles to be negative 68%. Ouch!
Last year, Rivian’s cash burn reduced the cash that the company had on its balance sheet from more than $18 billion to $12 billion.
Mark my words, there will be more cash burn this year… and it won’t be insignificant.
So while we aren’t paying much for the Rivian EV business right now, how much is a business that destroys cash at this rate actually worth?
In its current state, the answer would be less than nothing!
To be fair, I do realize that this is an early-stage growth company and that early-stage losses are to be expected.
But at the rate that Rivian is burning through cash ($6 billion last year alone), the company doesn’t have a lot of time to eliminate that cash burn and start turning a profit.
Rivian may well be able to do that and go on to achieve incredible things.
There is, however, very little certainty of that happening.
Despite that fact that Rivian shares trade close to the value of the cash on the company’s balance sheet, The Value Meter sees this stock as being no better than “Appropriately Valued.”
I wish the company luck and would happily drive one those cool SUVs… but I will not be owning any Rivian shares.