Hey guys it's sasha two days ago, rivian went public in one of the biggest ever ipos as soon as the shares were listed in nasdaq. They began trading at 110, 220 per share and yesterday riven's share price closed at 122.99, which says that the market has decided that this brand new company is worth 105 billion dollars. Today i wanted to talk about this valuation and try to explain a few important things, because it definitely feels like we are losing the plot a little in this world of meme stocks and things are going to the moon just so we are on the same page. I am a huge fan of this new era of evs.

I am a massive car guy. I love road trips. I have a whole website about all that stuff. I'm super excited for what revvion is bringing to the table along with other ev manufacturers.

Genuinely tesla is the single biggest holding in my investing portfolio and until recently i also held a big chunk of lucid motors shares as well. So this video is not coming from a position of ignorance, but here is the thing. Understanding trends is important. Understanding how the world is changing is important.

Seeing a bright future for reviews is great, but numbers numbers are also important and when i look at a new stock ipo like, for example, rivian. I question how much the numbers are actually being considered by these investors, because a valuation of 105 billion dollars for a company at this stage of growth is how should i put it unusual? I, in fact i think rivien is the first ever company to have a 105 billion dollar valuation, while not actually generating any meaningful revenue. The 200 odd cars they have delivered so far are not really meaningful. When we're talking in the hundreds of billions of dollars and in the run-up to the ipo, i have studied review stock a lot.

I have read through the s1 filing that everyone else read and everything else that they have published video, whatever i've done the homework. So let me share some of the reasons why i am not investing in review and in case you might find them useful. Just remember this is just my opinion. I am not a financial advisor and i can't provide financial advice to you.

This is just my personal view. One of the most important bits in reviews s1 filing was this statement about their outlook on manufacturing. Let me read it to you, based on our current production forecast, we expect to fill our pre-order backlog of approximately 55 400 r1 vehicles by the end of 2023.. A manufacturing facility in normal illinois is currently equipped to produce up to 150 000 vehicles annually, distributed between the r1 platform, which will be used to produce the r1t and r1s and the rcv platform, which will be used to produce edvs and other commercial vehicles.

When the equipment is operated at full rate and on multiple shifts now, the current annual install capacity for the r1 platform and rcv platform is approximately five thousand and eighty five thousand vehicles respectively. We produced 104 r1t vehicles during the last week of october 2021, representing approximately eight percent of our target r1 production rate. So let me pause here now. I am a numbers guy and when you go and value an early stage company like rivian, unfortunately, the main part of your assessment is going to be qualitative because you can make up whatever numbers you want and i'm going to cover that in just a second.

When the company is just starting out, but a very important part of the qualitative assessment, aside from everything else, is the numbers sniff test. If i go and look through the numbers presented by rivian - and i see that the numbers just don't stack up like with any other company, where i look at them in this way, this is a major warning flag to me. I would much prefer a company to tell me real numbers that were much much lower, but make sense then tell me numbers that absolutely do not make sense, but kind of look big. So here we have rivian saying that it will take them about two years and two months to fill the pre-order backlog of r1 cars, it's the r1t pickup truck and the r1s suv, and that's if there are no hiccups.

This is sort of their ambition and every company that starts manufacturing for the first time does eventually have some hiccups or some issues to overcome tesla included. I am sure rivien will have them too. Then they say that they have a current installed capacity for r1. Cars of 65 000 per year, so, according to this wording, that capacity is already there.

It is currently installed. It is almost like ready to go. You just need to put some people into it and it will spit out 65 000 cars a year. So the obvious question, then, is why, if that is the case right now, as i'm recording in the first half of november 2021, why is it going to take them until the end of 2023 to go and complete on that backlog? That's the year after next year to complete the production of the 55 000 pre-orders, even assuming the production kind of ramps up and is larger towards the end of this period than at the beginning.

That means production in over two years. Time will still likely be at less than half this stated capacity that they apparently already have in place. Take a look at how the same message, for example, was delivered by one of rivian's competitors. Lucid motors lucid have announced that their arizona factory has a maximum current current capacity of 30 000 cars per year.

Some would say this is a relatively modest number in comparison and next year, lucid plans to make 20 000 cars in the first proper year of production. So production will ramp to pretty much close the full available speed just over the next few months, which kind of makes a lot of sense right the year after lucid plans to make 36 000 lucid air cars. So they are already planning to increase that existing capacity. In 2023 and they've announced that they are starting to build a whole new part of the factory next to the existing one.

In order to achieve that, so those numbers just add up. They kind of make sense, logically right, but ribbian is stating that they have a current existing installed already in place capacity of 65 000 cars per year, and that doesn't, and the problem then becomes if that is the numbers that they are showing for the car. That is currently starting production. How much faith? How much trust do you place in the 85 000, currently install capacity that they are stating for the rcv platform that hasn't started? Yet if it is currently installed, how come we're not really hearing anything particularly specific about possible dates? The only data that i seem to have found is that they are stating that i produce 10.

Yes, 10 of those cars in december and then they're saying they're, going to deliver 100 000 of those rcvs to amazon in 2025.. Data in between those two data points is incredibly vague, and this carries through everything else that i have looked at, and that to me is a major warning flag. When i'm looking for a company to invest in, there is very little on the specifics compared to even other small entrants, like arrival or like, for example, lucid. What is their exact plan for the next few years and deliveries there's very little disclosure on the technology? That is, underpinning the car, an explanation of exactly how much of that tech is in house.

How much is outsourced. How and remember this when you buy a share of a company, you are becoming a part owner of that company. You are investing your hard-earned money into that business, and the question for me is: do you want to go and invest in a business that you feel is maybe not being as upfront with you about the numbers or as clear at least about them, as maybe some Of the other companies that are, and would you invest in a company where those numbers don't seem to make as much logical sense but hey? Let's move on from this point because riven is saying they have a current capacity to produce 65 000 r1 cars and 85 000 edvs per year. And let's just assume that that happens - and it looks like they are planning to be running at full pace by 2024 or 2025 based on these numbers.

So they are going to get to a run rate of 150 000 cars per year somewhere roughly in maybe year. Three ish and just for comparison tesla only broke through the 150 000 cars per year in 2018, that's three years ago, and that was their seventh year. After launching the model, s and sure rivien is not the first of the party. They have a completely different financial situation.

I get that lucid is currently planning to get their 150 000 cars per year only in 2026., but let's say that rivien can do it. Let's say that they are great and let's say that they sell those cars for 80. 000, each, for example, now remember that tesla was making losses in 2018 when they first began making over 150 000 cars per year, because that still wasn't big enough for those massive economies of scale. But let's say rivien is way way better than tesla.

Let's say: rivien has a magic unicorn covered in some kind of fairy dust. Let's say that they make a 10 net margin from that very moment when they start producing those 150 000 cars. That is way more than any of the current big car manufacturers. So it is actually far more than tesla was producing the time they were lost, making it.

It is a very high number, so if they do make 150 000 cars, however unlikely at eighty thousand dollars each, which is a lot which all have a 10 margin, which is near enough impossible. That would make them 1.2 billion dollars in 2025.. If i then discount that at just 10 per year that 1.2 billion becomes just 780 million in present value, then let's say that they grow at an insane rate. Let's say that they match tesla and grow at 50 per year from there is going to be difficult, but let's give them the benefit of the dow.

Let's say that they are right out there with the best of the best. Then let's say that they continue pumping out a 10 net margin now tesla's net margin at the moment after everything they've been through, is only about 11, just in case you're wondering so. Let's say that they hit 10 and stick there. Then in 2030 rivian would generate 9.1 billion dollars in net income, but at a modest 10 discount rate.

That is only about three and a half billion in today's money, and so assuming that they turn profitable in record time that we've never seen before set absolute production. Ramp records, like nobody else, have industry leading margins much earlier than anybody else can possibly get there and have no hiccups whatsoever. They would generate 11.4 billion in total present value from now through to 2030, and therein lies the issue i was investing in lucid motors. For example, when their valuation was around 25 billion dollars - and that was expensive for sure - and some people would say that was way too expensive for a new company that hasn't even produced any cars.

That was very expensive, but you could make some kind of mathematical argument. Let's say they had exactly the same sort of numbers, and you were similarly optimistic about their outlook. Then you could say: okay. Well, i can take that three and a half billion or whatever it is in present value in 2030 and take a 15 or 20 times.

Multiple at that point on that number and say: okay, the best case. The perfect scenario is that we collected 11 billion in net income, and then we have another 50 billion in that value from 2030 onwards, sat on top, and so maybe paying 25 billion for something you think is worth maybe 60 could kind of make theoretical sense. But here we have a company where we're paying 105 billion dollars for those future cash flows and remember that up to the end of 2030, that super optimistic case is giving you about 11 billion back. I'm not sure which of these numbers have to be more optimistic.

In the valuation, in order for us to get even close, do you assume that ribbing is going to break even even sooner than just three years? Do you assume they're gon na have a crazy, multiple at the end of this next 10 year period? Do you assume that they beat the huge, ambitious numbers that they have announced as their target? Do you assume that they will grow continuously all the way through the next decade, at over significantly over 50 percent for all these years in a row, and that's that's kind of why i don't hold a position in riven. I just do not see a mathematical upside, not one that i can convince myself of logically anyway. At best i think rivien is overvalued by a factor of two, but who knows in this day and age? Maybe i just don't get it, maybe i'm a dinosaur, maybe rivian is going to hit the 1 trillion mark by christmas. Who knows, if you found this video useful, please don't forget to smash the like button for the youtube algorithm.

Thank you so much for watching. I really really appreciate it and, as always i'll see you guys later.