Rivian a Great Buy or Sell? hedge fund a “cornerstone investor” in Rivian

Rivian’s IPO Enriched Hedge Fund Third Point

The Financial Times reported that Dan Loeb’s hedge fund Third Point has made hundreds of millions of dollars on its stake in electric-truck startup Rivian Automotive . Early investors making a mint isn’t all that surprising. But it does show the benefits of being a well-placed institutional investor.

Third Point has made an estimated profit of as much as $300 million, according to the report. It isn’t clear if that is a realized gain—if Third Point has sold or is still holding Rivian (ticker: RIVN) shares. Third Point wasn’t immediately available to comment.

The hedge fund was what was described in Securities and Exchange Commission filings as a “cornerstone investor” in Rivian.

Typically, early investors are prohibited from selling stock for180 days following an initial public offering. Ford Motor (F), for instance, won’t be selling any Rivian stock before the so-called lock-up period expires. But after, Ford would be free to do so. Ford didn’t offer a comment for this story.

Third Point is by no means the only cornerstone investor. That list includes funds managed by T. Rowe Price (TROW), Franklin Resources (BEN), Blackstone (BX), George Soros and others.

Third Point’s gain isn’t all that surprising. Neither is the list of cornerstone investors. Large institutions are ones with the money to back startups like Rivian. Backing this startup was a success. Rivian has a market cap of about $120 billion based on its fully diluted share count. That’s a higher valuation than Ford or General Motors (GM).

3 Reasons Rivian Could Be a Great Buy Now

Rivian is disrupting the truck and SUV market in all the right places.
A modular foundation for consumer and commercial vehicles could be a key to success.
Brand awareness for Rivian is booming.

Few stocks capture the market’s imagination and ire quite like Rivian (NASDAQ:RIVN), the electric vehicle (EV) start-up that’s only recently started generating revenue. Shares 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 have control of the market today, and there are certainly a lot of questions facing this manufacturer. But there’s also a lot to like, and there are three big reasons why I think Rivian may not be a bad buy today.

Rivian is disrupting in all the right places

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

A foundation to build on

Despite the fact that Rivian has generated almost no revenue and is very early in its production, the company has a great foundation of orders to build on. Amazon has ordered 100,000 delivery trucks, and there were over 50,000 pre-orders for R1T trucks and R1S SUVs even before the publicity Rivian got by going public on Nov. 10.

A foundation to build on

Reasons to like Rivian stock today

There are plenty of reasons to question Rivian’s stock price today. The company hasn’t proven it has the ability to build vehicles at scale or profitably. And we don’t know how quickly the company will be able to expand into new plants or new vehicles.

But there’s a bullish side of the story, too. Rivian is building a business model that’s disrupting all the right places of the auto business, has platforms to build on, and is building a formidable brand. Don’t discount the importance of these factors in building a great business long term because it’s a lot of the same playbook Tesla has used for a decade. But instead of paving the road itself, the company has learned from Tesla’s wins and mistakes.

Reasons to like Rivian stock today

3 Reasons to Sell Rivian Automotive

Rivian’s valuation looks overly optimistic considering its weak economic moat against stiff competition.
Don’t be left holding the bag when the market returns to its senses.

Soaring 50% from its Nov. 10 IPO price of $78 per share, Rivian Automotive (NASDAQ:RIVN) has hit the ground running. But while the hyped-up electric vehicle (EV) automaker has richly rewarded its early backers, new investors could be left holding the bag because of its excessive valuation and lack of competitive advantages.

Let’s explore the reasons why Rivian looks too expensive for what it has to offer.

1. Rivian’s “skateboard” tech isn’t a game-changer

Founded in 2009, Rivian is a U.S-based automaker focused on building electric SUVs and pickup trucks. It sets itself apart by specializing in the utility-vehicle niche. The company relies on a modular chassis design called the “skateboard,” which houses the battery and other components in a single unit that can be adapted to its entire lineup and sold to other automakers.

Rivian’s skateboard module can help simplify its supply chain, letting the business scale up faster. But while the concept has garnered interest from other companies like Ford and Amazon (which is reportedly working with Rivian to build 100,000 skateboard-based delivery vans by 2030), Rivian is also facing challenges from its partners.

In November, Ford dropped plans to co-develop an EV using Rivian’s technology. And this follows the cancellation of plans to build a Lincoln EV using Rivian’s skateboard in 2020. According to Ford’s CEO Jim Farley, the change in plans has to do with the complexity of combining Rivian’s architecture with Ford’s software, along with Ford’s own technological strides in developing EVs.

The cancellation suggests that Rivian’s skateboard design might not offer enough advantages for external automakers to consider it worthwhile to incorporate into their vehicles.

And this begs the question: What’s so special about Rivian, anyway?

2. Stiff competition

With Rivian’s skateboard not looking like a game-changer for the EV industry, its economic moat looks significantly shallower. And in terms of branding and economies of scale, the company may struggle to establish itself against significantly better-positioned rivals.

3. Astronomical valuation

With a market cap of $104 billion, Rivian overshadows Ford (worth $77 billion) and General Motors (worth $93 billion), despite not generating material revenue with a net loss of $288 million in the third quarter. The company’s valuation is hard to justify because the legacy automakers are significantly further ahead in actually producing and selling EVs.

For example, Ford’s EV sales volume surged 195% year over year to 14,062 vehicles in October alone. But Rivian has only delivered 156 R1T pickup trucks as of October (mainly to Rivian employees). And while the upstart will likely scale up its production over the long term, so will its rivals.

Is this end of fundamental investing?

Rivian highlights an interesting trend in financial markets where hype and speculation are beginning to overshadow fundamentals in asset valuations. We saw it with the meme-stock craze in late 2020, and now with meme cryptocurrencies in 2021. Rivian seems to be part of this zeitgeist.

It may be tempting to think “this time will be different,” but financial history from the dot-com bubble to the housing crisis tells us this is rarely the case. So don’t be left holding the bag when the Rivian bubble pops.

Should you invest $1,000 in Rivian Automotive, Inc. right now?

Before you consider Rivian Automotive, Inc., you’ll want to hear this.

Exclusive 2022 Rivian R1T Review: first full performance track test, 0-60, EV range…

The Rivian R1T is a brand-new all-electric pickup truck set to launch in late 2021.

With the Tesla truck and the electric Ford F-150 Lightning still months away, the 2022 Rivian R1T is the first electric pickup truck to hit the market.

In this video, Alistair Weaver from Edmunds brings you an exclusive, independent, instrumented test of the Rivian electric truck. Alistair puts the R1T through a variety of performance tests, including a 0-60 test that Rivian claims its electric truck can do in 3 seconds. We also subject the Rivian to the world-famous Edmunds EV range test and size up how well its range numbers hold up to our testing and how they compare to other EVs. The experts at Edmunds are excited to bring you this very special review of the 2022 Rivian R1T electric pickup truck.