Investment work (big change since my last article)

In a fundamental change, because I he wrote my last Rivian (NASDAQ:RIVN) piece in November, Rivian made a significant strategic development step from exclusive partnering with Amazon to expand its reach into the commercial vehicle market, which I believe solidifies its position as an attractive investment in the electric vehicle (EV) sector. Rivian recently introduced a partnership with AT&T to sell its electrical supplies to the cable giant and expand its commercial customer base. This bold move demonstrates Rivian’s confidence in its technology and commitment to expanding sustainable transportation. And taking this bold step before the new year warrants a coverage update because I believe this is a multi-billion dollar opportunity that shareholders are now starting to focus on. we’re approaching 2024. Specifically, the company’s electric deliveries offer a huge advantage to businesses that adopt them: significant cost savings, exemplified by potential savings for organizations like the USPS. Rivian’s in-house component manufacturing and strong supplier relationships further increase its cost-effectiveness and manufacturing scalability. With recent expansion into new markets and a strong product line, Rivian is well positioned for continued growth. The company’s ability to adapt and take advantage of market opportunities, coupled with prudent financial management, makes it a compelling investment choice in the rapidly evolving EV landscape. I believe the stock is a strong buy and think this development is an accelerator for the company (and the stock).

Background

Rivian, an emerging force in the electric vehicle (EV) market, is changing the future of sustainable transportation. The company was first established RJ Scaringe in 2009. Rivian quickly made headlines for its cutting-edge approach to EV technology. Rivian has also made a significant contribution to the commercial vehicle sector with its electric vans (EDVs), which were developed in partnership with Amazon to revolutionize last-mile delivery. More recently, as I touched on earlier in the fall, Rivian ended its exclusive partnership with Amazon and greatly expanded its customer base. I predict that they will soon become the dominant company in the EV sector as they give companies the ability to reduce their carbon footprint while saving huge amounts of money. To maintain its commitment to sustainability, Rivian emphasizes green manufacturing processes and the goal of reducing its carbon footprint through transportation.

Again, while I he wrote on Rivian last month, I made it clear that the electric car maker’s decision to end its exclusive strategic partnership with Amazon meant that 2024 could be a big year for commercial sales. Much to my pleasant surprise, the automaker took a big leap before the new year and struck a key partnership with AT&T.

More details on what’s changed in the last month: Van Program

Rivian’s bold step ending its exclusivity with Amazon and opening up its electric vehicle (EV) technology to the wider market is a game-changer and, in my opinion, confirms my “strong buy” thesis for the company. Let me explain why this move is so significant for Rivian and the electric vehicle industry as a whole.

The termination of the exclusivity agreement with Amazon represents a key change in Rivian’s strategy. Initially, this exclusivity provided Rivian with a reliable and extensive customer in Amazon (An order of 100,000 units), verifying its technological and market potential. However, by withdrawing from the exclusive contract with Amazon, Rivian greatly expanded its horizon of opportunities. Now any company that wants to participate in more sustainable modes of transportation can work with Rivian. Given the current environmental climate, companies around the world are looking for ways to reduce their carbon footprint. Rivian’s electric vehicles can provide them with a way to achieve this.

Not only are Rivian EVs attractive to businesses due to their eco-friendly components, but these vans will save businesses millions of dollars (more details on how EV Vans save commercial customers money below).

AT&T contract details

Rivian’s recent announcement the fact that AT&T will buy electric vehicles from Rivian represents a key point in the company’s efforts to diversify its commercial customer base.

First, the significance of this agreement lies in its timing and context. As I mentioned, Rivian, having just ended its exclusive contract with Amazon, was able to quickly find other contracts for commercial vehicles. I think this quick turnaround is a testament to market demand.

This deal with AT&T, a major player in the US telecommunications sector, is proof of Rivian’s appeal and marketability beyond just using its vehicles in the delivery space. This indicates that Rivian’s commercial product – electric commercial vans – is versatile and desirable in various industries.

How electric vehicles reduce costs for commercial van buyers

Electric vehicles (EVs), such as Rivian commercial vans, offer significant cost savings to commercial buyers, primarily through lower lifetime costs and significant tax credits. The analysis found that over a five-year ownership period, the total cost of ownership of a battery operated electric bath ranges from $69,000 at $92,000 compared to $71,000 for the petrol van and $82,000 for the diesel van. This is largely because EVs are much cheaper per mile to run, with national averages showing them to be 3-5 times cheaper to drive than gas vehicles.

The maintenance costs of electric cars are also significantly lower, which is due to fewer moving parts in electric cars and the absence of oil changes. Total cost of ownership parity for electric vans with a range of 200 miles is already lower than the diesel version and will be cheaper than the petrol version by 2025.

When it comes to tax credits, businesses purchasing electric commercial vans can benefit greatly. The IRS offers the Clean Vehicle Credit up to $7,500 for qualifying vehicles such as Rivian vans. In addition, the lifetime cost of ownership of EVs can save owners $6,000 to $10,000 over the lifetime of the vehicle compared to petrol vehicles. These savings are mainly due to lower fuel costs, as electricity is significantly cheaper than petrol.

How Van Affects Rivian Stock

Rivian Automotive made significant progress in 2023, especially in terms of its commercial deliveries, which had a solid impact on their stock performance. Towards the end of 2023 Rivian shares (RIVN) hit a 1-year high of $25.63. This increase can be attributed to the delivery of vehicles, more precisely their commercial vans, with more than 15,564 of vehicles delivered in the second quarter. This increase represents a 33% year-on-year increase year to date.

Analysts have come to a general consensus on Rivian’s trajectory. They are bullish on Rivian’s future, Wedbush analysts actually raised their futures price target to $30 from $25. This jump in the price target confirms confidence in the company’s future. Wall Street brokers set a median price target of $24, indicating a positive outlook for Rivian’s future.

As I mentioned earlier in the article, a significant development for Rivian in 2023 was the termination of the exclusivity agreement with Amazon. This move allowed them to expand their commercial van customer base. AT&T became the first non-Amazon buyer and planned to incorporate Rivian vans into its fleet as part of its strategy to achieve carbon neutrality by 2035.

Although there have been positive developments for Rivian in 2023, their stock still faces some challenges. While he got up 12% on deal with AT&T and about 30% last monthstill down 10% over the past 12 months. That said, it’s still down from its all-time high after the November 2021 IPO. I think it’s a great place to jump in.

Valuation

I want to first determine the size of the Rivan supply market before considering its valuation impact.

Market size opportunity for Rivian Vans

Considering the annual sales of approx half a million Class 2b-3 trucks in the United States, Rivian electric vans are positioned in a significant market with significant growth potential. Assuming long-term market penetration of 20%, Rivian could aim to gain 100,000 sales per year in this segment. With a suggested retail price of $80,000 for electric vans, this penetration rate would translate into potential revenue of $8 billion per year. This estimate underscores a significant opportunity for Rivian to capitalize on the growing demand for sustainable and efficient commercial vehicles, particularly in the light-to-medium-duty truck market, where electrification is gaining momentum.

How does this yield translate into the share price?

Rivian trades at a forward price multiple of sales 5.14. While this is significantly higher than the sector median of 0.94, it is below Tesla’s forward price to sales multiple (TSLA) of 8.33 (I think Tesla is also a buy, but it shows how Rivian is more reasonable among innovators in the market).

If Rivian could capitalize on this $8 billion per year opportunity, it could represent (at a price-to-sales ratio of just ½ current future price-to-sales of 5.14) more than $20 billion in market cap growth for the company, which equates to approximately 88 .5% of share price growth (assuming no further dilution).

Risks of work

In my opinion, Rivian’s main interest is intense competition, especially in the commercial vehicle segment. Established car companies such as Ford with their 2023 E-Transit, are central to this challenge, particularly through their ability to secure contracts such as that from the United States Postal Service. Ford though lost their tax credit on their EV supply due to a lack of sufficient US-made parts to qualify.

In addition, the EV sector is witnessing an influx of new entrants, from traditional automakers to innovative startups. This growing competition underlines the need for Rivian to constantly innovate and differentiate itself in the market. Central to Rivian’s future success will be the continued rapid pace of technological advancement, which requires constant innovation and agility.

Despite these obstacles, Riviana’s journey is characterized by resilience and adaptability. The company is actively working on its improvement production capacityimprove production processes and strengthen relationships in the supply chain. These efforts are critical steps to overcome previous challenges and achieve higher production volumes with improved efficiency.

While Rivian faces significant risks, I remain optimistic about Rivian’s ability to meet these challenges and seize the opportunities presented by the evolving EV market.

Bottom Line

Rivian’s journey into the electric vehicle market, specifically its commercial vans, demonstrates a strategic combination of innovation, market adaptation and financial acumen. After ending the exclusive contract with Amazon, the customer base has now grown considerably. This opens up new opportunities for them in the EV market and further consolidates their position. As demand for their vehicles grows, their focus on profitability and cost efficiency can be demonstrated through the production of their own components and building relationships with suppliers. Together, these efforts establish Rivian as a promising investment with a positive outlook. Rivian aims to become a pioneer and key player in the field of sustainable transport, while providing companies with the opportunity to move towards a more environmentally friendly future and the opportunity to significantly reduce costs. I believe the stock is a strong buy. I look forward to hearing from management in the new year.