Should You Buy Rivian? 3 Pros, 3 Cons

Electric vehicle maker Rivian Automotive Inc. (ticker: RIVN) broke records with the launch of its IPO on Nov. 10 and its immediate placement as the second-most-valuable U.S. automaker, after only Tesla Inc. (TSLA). Though it started out with an ambitious $52 billion valuation target, the stock has continued to soar, and the upstart truck maker with fewer than 200 vehicle sales under its belt eclipsed $100 billion in market capitalization by its third day of trading. While some see the backing from Amazon.com Inc. (AMZN) and Ford Motor Co. (F) as vindication of their beliefs in Rivian's bright future, others may be wary of a fledgling manufacturer riding high on the meme stock wave with few fundamentals to support its massive valuation. If you're considering getting in early, here are three pros and three cons to buying RIVN.

While it isn't the first EV company to be called the Tesla-killer, there's a good reason behind the hype: Amazon led the automaker's first round of funding in 2019 and has taken a 20% stake in the company. The same-day-delivery giant has also ordered 100,000 electric vans to green its delivery fleet. Ford also took an early shine to Rivian, and though partnerships to build EVs with Ford's Lincoln division fell through, Ford still holds a 12% stake in the company and has kept the option for strategic partnerships open. Beyond that, T. Rowe Price Group Inc. (TROW), Blackrock Inc. (BLK) and Franklin Resources Inc. (BEN) were all listed as cornerstone investors in the company's filings.

Usually, it takes a bit of time for a company's stock to settle on the right price following an IPO. With its valuation sitting at more than $100 billion on its third day of trading, investors have asked themselves why a newly minted automaker is worth more than old stalwarts General Motors Co. (GM), valued at $92 billion, or Ford, valued at $78 billion. Though it beat Tesla to deliver the first electric pickup truck to market, Rivian has delivered fewer than 200 vehicles, according to its SEC filings, and has about 55,000 preorders for its R1T pickup and R1S SUV. In its IPO filing, Rivian said that it expects to deliver about 1,000 vehicles in 2021.

Anyone who has witnessed Tesla's meteoric rise over the past two years, or even Lucid Group Inc.'s (LCID) ramp-up this year, can tell you that the EV market has priced in significant future growth potential. The number of EVs on roads across the globe surpassed 10 million in 2020, nearly doubling from a year earlier, and the International Energy Agency predicts that number will reach 145 million by 2030. Add in the fact that more than 75% of U.S. vehicle sales in 2020 were pickup trucks and SUVs, and you have a recipe for strong growth. Rivian stands to benefit from its first-mover status.

Rivian burned through nearly $1 billion in the first half of 2021 and expects to drop another $1.28 billion for the third quarter. Adding to the pressure, Rivian's former vice president of sales and marketing has sued the company, alleging that it has a "toxic bro culture" and that she was ignored when she raised concerns internally that its vehicles were underpriced, had manufacturing quality issues and set unrealistic delivery targets. After she was fired in October, the company quietly adopted some of her recommendations, and some of those concerns were addressed in an amended S-1 form filed with the Securities and Exchange Commission on Nov. 5. While it's unlikely to step away given its large investment in Rivian's success, Amazon is under no obligation to purchase its full order of 100,000 electric delivery vehicles, which could be a headwind down the road if Rivian doesn't deliver.

While it has limited capacity of 150,000 vehicles per year at its plant in Normal, Illinois, Rivian has two planned additions to that facility that will expand its footprint to a total of 3.9 million square feet. Rivian has budgeted $5 billion for a second factory in the Dallas-Fort Worth area of Texas, dubbed Project Tera, which would produce 200,000 vehicles per year. Officials in Fort Worth have approved a package of tax incentives worth $440 million for this facility. The National Highway Traffic Safety Administration also approved Rivian for direct-to-consumer sales in all 50 states, mirroring the successful strategy of Tesla and Lucid. The company hopes that the electric van purchase from Amazon is just the opening purchase in what could be a stable and profitable fleet vehicle manufacturing program.

Rivian is currently selling two models: the R1T pickup truck, which starts at $67,500, and the R1S SUV, which starts at $70,000. The "adventure" vehicles target a niche market of outdoor enthusiasts and will come up against tough competition from Ford's F-150 Lightning in spring 2022, GM's electric Chevy Silverado in late 2023 and Tesla's Cybertruck sometime in 2022. Both the Cybertruck and F-150 are expected to be priced at less than $40,000 for base models. Volkswagen, Lucid and Stellantis NV (STLA) will also compete for market share as they bring new EV offerings in the coming years.

• Pro: Big backers.
• Con: Huge valuation.
• Pro: A growing EV market.
• Con: Startup headwinds.
• Pro: Expansion plans.
• Con: Competition.