The Rivian (NASDAQ:RIVN) share price is down 70% over the past 12 months. And, naturally, that represents a terrible return for investors. However, the company still has a market-cap of $28bn. As a point of reference, that’s four times greater than British engineering giant Rolls-Royce.
With Rivian yet to turn a profit, there is clearly plenty of faith that the electric vehicle (EV) maker will be highly profitable in the future. After all, growth stocks are valued on potential.
So is Rivian right for my portfolio and will this EV newcomer be the next Tesla?
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Valuation
Despite the stock’s value falling substantially over the past year, Rivian still looks very expensive to me. In 2021, Rivian generated $55m in revenues. And with that lofty market-cap, this means its price-to-sales (P/S) ratio is over 500. That is absolutely huge. By comparison, China’s EV maker NIO has a P/S ratio of four after the firm generated more than $5bn sales in 2021.
Rivian is expecting revenue to increase to $1.9bn this year, but Q1 was way off track. If it did hit this target, the firm would have a P/S ratio of around 15. Which is certainly a lot more attractive.
Prospects
Rivian is going after a different customer base to Tesla. It currently has two models for sale, a truck and an SUV. The R1T (truck) and R1S (SUV) start at $67,500 and $72,500 respectively, which makes them considerably more expensive than Tesla’s cheapest models (the 3 and the Y start at $46,990 and $62,990).
Rivian’s offer will appeal more to the adventurous consumer rather than Tesla’s core buyers. However, CEO RJ Scaringe plans to launch six models by 2025. To date, nobody knows what these models are going to be.
However, the California-based company is also producing electric vans, and Amazon has already ordered 100,000. With little competition here, Rivian could be well positioned to corner the electric van market.
And we already know that electric vans can work as major delivery vehicles. Ironically, Rivian is not the first company to produce an electric van. In 1967, the UK Electric Vehicle Association said that Britain had more electric vehicles on the roads than the rest of the world combined. Most of these were, of course, milk floats. This time around, it looks like the American firm will have a dominant position in the sector.
Concerns
Valuation is a major issue for me. It’s still a long way from looking like an attractive prospect for my portfolio. There are also supply chain issues, notably as demand for products like lithium outstrip supply. In May, the company reaffirmed its annual production forecast of 25,000 units, halved from 50,000 in March.
Will I buy Rivian stock?
Should I buy Rivian stock? There’s two major issues for me. Firstly, it’s too expensive and secondly, it looks like it will struggle to meet its targets amid supply chain issues. For me, it’s a no.
In the long term, I may be wrong and it may be the next Tesla, albeit targeting a slightly different market segment.
