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everyone meet kevin here we need to do a deep dive on what rivien just told us today we've gotta talk of cours at the end of christmas day take advantage of that before the price goes up again all right folks let's get into what's going on here with rivian so rivien delivered 386 vehicles through december 15th almost all of those were delivered to employees all except 11.
11 r1ts were delivered to actual customers and two r1ss which is the suv compared to the truck were delivered to customers rivien apparently produced 652 vehicles in total they did only deliver 386 of those so we do expect deliveries to ramp up here nonetheless production well the production target of 1200 r1ts and 25 r1s will be missed that is rivian production will be less than 1200 units for 2021.
reason for that being cited are supply chain issues no surprise here they suggest that the supply chain issues they're facing are not long-term issues but the problem is they have this issue of hey we could have 99.9 of the parts but if we're just missing 0.1 percent of the parts we can't finish building the vehicles they're blaming a lot of the shortages after having read the earnings call on smaller manufacturers who are providing them parts who don't necessarily have the bandwidth or capacity during covet to add a second or third shift which means they're not able to deliver these these minor parts that are needed and without those components the production line shutdown there are rumors and i want to make this crystal clear this is just a rumor but there are rumors that production lines at rivian do shut down multiple times per day this was not brought up in the earnings call so going back to what we stated in the earnings call back in the earnings call we did have executives try to make it very clear that they are at the start of an s curve and that production is is slow at the beginning of an s curve and they're not wrong just for clarity sake because not everybody might be familiar with an s-curve an s-curve is something that is very frequently referenced when you're a startup especially if you're a manufacturing startup so an s-curve of production is essentially a two-folded uh version of exponential lines so the goal is that you grow very slowly slowly slowly but then that growth starts compounding and then you grow exponentially that might be a little bit too vertical here probably look a little bit more like uh yeah there we go probably look a little bit more like this and then at some point you kind of reach an inflection point and that s is off so your production starts growing less per year so this is the phase over here where you might have high percentage returns in terms of oh my gosh we did 1200 cars in 2021 and we had 10 000 in 2022 we grew 800 or whatever right this is where you get those ridiculous percentage returns which you should not look at for a starting company you should look at actual uh cash flow free cash flow and are they running a profitable shop or their margins going up right money losing companies in this market are very dangerous i've been talking about money losing companies uh being the biggest target for sellers and short sellers probably for about six to ten weeks now and jim cramer just today did a piece about how you should sell money losing companies which i think is interesting that he's telling you that after everything's already fallen discounted substantially but whatever uh so and then of course over here this is where you would expect to see those 100 sorts of gains where it's like oh wow we're doubling doubling doubling or more than doubling right that's your exponential growth and then then your growth slows your growth goes back to oh okay we're growing at 20 percent a year we're going 15 a year four percent a year whatever right goes down obviously this is where your multiple is generally infinite when you do a pe multiple calculation for these which we'll do later for rivian in 2025 we're probably still going to be relatively early if rivien survives until then which it's worth noting that companies do not have to survive okay that is very important to remember but say riven does survive which i expect it probably will unless its products just horrible uh which i don't i don't think but uh say they survive you know by 2025 we we expect their forward multiple probably still to be 300 here uh and then maybe you go to a hundred and then when you hit that inflection point this is where you start going to like 50 35 right and that's how your multiple starts compressing as your growth goes down this obviously makes sense okay good so let's talk a little bit more about rivien and what we learned today so we know that we missed production numbers we know that at in the after hours rivien is down about eight percent so we can see the uh chart for rivian right here earnings were today so uh this is the after hours action here which if we just zoom over here we'll see that uh before we essentially we closed at right about 1 108 109 and we did drop to a low of about 95 sitting at roughly 99 30 right now is where we're sitting so just shy of a hundred dollars a share so uh now other things to note is that uh well a big one here is that rivien said thursday that they're going to start delivering the first prime rivien vans to amazon this month this is really important this is a critical milestone we also don't expect that employees or amazon are going to be complainers about the initial deliveries of these vehicles that is because both employees who are likely paid at least in some part in stock and amazon which owns a substantial portion i think in excess of somewhere around a 20 uh 20 stake uh and those numbers can fluctuate given that now we're we're uh on the market and it's not entirely clear if amazon was able to sell on the ipo or if they're subject to lockups imagine a lot of their shares are subject to lock up either way amazon has a substantial stake in rivian and we don't expect that employees or amazon are going to complain about the product so probably not expecting any negative headwind from employee deliveries or amazon the the most important ones are going to be those initial customer deliveries and probably uh kind of like with lucid what you want to watch for are initial problems like do these things burst into flames right did somebody get into an accident with it and get severely injured those are really really important and super critical when a company starts so do pay attention to that news cycle though if you look at a company like lucid we haven't actually had those issues which you know knock on wood you don't want those sorts of issues certainly you don't want anybody getting hurt now rivian is also prioritizing the amazon van project over its consumer models so they're using this uh and this this was reported back in october so we already kind of knew this again not a surprise because you're gonna have probably a less complaining customer or a more understanding customer over at amazon than consumers who are going to expect perfection and you're the 20th car off the line you know well for consumers that's that's going to be a high bar right anyway uh uh it is worth noting that both of the r1 models the truck and the suv had reservations at the end of october of about 55 400.
we're now at 71 000 reservations we did have some negative news in this last quarter that ford ended their partnership with uh their their plan to build a joint vehicle with rivium this is probably not necessarily a horrible thing ford's making its own electric pickup truck we've got um rivian making their own electric truck i'm not sure they really need each other ford has its proprietary skateboard for for their pickup truck so whatever uh now what i want to do though is is talk about uh some big well a big red flag that i see and it's pretty important and we're going to talk about this red flag and then we're going to look at some notes as well from the earnings call we might look at the notes from the earnings call first but i really want to talk about this red flag but before i do i just want to do a quick 20 second shout out here thank you to masterworks for sponsoring this video check the link to them in the description down below remember that masterworks allows retail investors to buy fractional shares in high-end art it has almost all of today's most popular artists like banksy included and since you can buy fractional shares in modern art you can invest in a multi-million dollar pieces of artwork for as little as twenty dollars now traditionally the only way to actually invest in these sorts of pieces was if you were rich well now you can you can invest in essentially fractional shares and you can sell those shares on the secondary market that masterworks has as well for art or just wait until they end up reselling the actual uh investment uh now it's also worth noting that art by some measures has actually outpaced the s p 500 substantially for for the last many years and so do consider masterworks and some of your investments check that link out down below and thanks masterworks for sponsoring this okay so let's look at the earnings call and then i want to talk about the red flag the earnings call does contain a reference to this red flag so for the time being we're just going to skip over that uh i just want to highlight a few things here that are worth noting uh as a rivian investor and then we're going to keep going here so uh we know that motor trends name the r1t the truck a motor vehicle of the year uh personally i don't really care about these sorts of uh rewards awards i don't care what matters to me is consumers buying the product that is that is the ultimate uh selling feature for me uh it's also worth noting that in early 2022 they plan to complete the certification of their electric delivery vehicle 500 which is narrower and shorter than their 700 but their goal right now their priority is to get the r1t the truck the suv and the 700 for sale this year uh worth noting that they're already working on developing essentially their second line and getting that certified for the electric delivery vehicle i do get a little bit concerned this is not the red flag i want to talk about but it is it's something that i do consider i do get concerned if too quickly you start thinking about uh so many different lines of vehicles that you could especially on one manufacturing plant that they have right now you could really spread yourself too thin uh i that is probably one of the biggest issues for companies in my opinion is that they hire too quickly and they try to grow too quickly and it's a really good way to go bankrupt again i'm not suggesting that i think rivian is at risk of going bankrupt but this is something that i do want to pay attention to it's something that does make me nervous now uh it's possible that we're pulling a tesla approach here and we're going to use a lot of the same parts now this is the motor trend video on the r1t and one of the things that i have to say i appreciate it so far at least from the research that i can do from a desk is that it does appear that the r1t along with the r1s the suv and the truck do use substantially similar interiors oh and i love that they have actually have a coat hook on the back of the chairs unlike the teslas but anyway substantially similar interiors is very important so that way you're using consistent parts you're still going to have substantially different exteriors on these vehicles but the more you can standardize the parts on the inside the better very very important to keep that margin up and that's going to be something critical for valuing rivian as we go forward so what else can we glean from the earnings call well we find out that uh they do not believe that their supply chain issues are going to represent long-term uh issues we're going to uh it's worth noting that for their georgia factory they expect to eventually get to a target capacity of 400 000 units there and i believe 200 000 is the goal for their normal illinois facility which they have open now per year keep in mind this is going to take a while to ramp i i would guess for a new factory that they open up in 2024 which is the estimate barring delays probably take five years to get to a full ramp there i mean even if you did it in three that'd be very impressive that's just a note about them having delivered their first 11 vehicles second plant we'll talk a little bit more about this in just a moment here's the 99 argument with the uh supply shortages so no real surprise here we do get a comment that this was quite interesting that close to 90 of the customers for the r1t have never owned a truck and that was very interesting and the vast majority have never owned an electric vehicle so that was quite an interesting comment that came from here the vast majority have not owned an electric vehicle and 90 have never owned a truck so they're really appealing to potentially this this new audience which i'm not sure if that's good or bad that maybe you're not converting truck enthusiasts but it is always good to open up your market the uh amazon deliveries they they do expect that to come out uh this month and they're going to ship that with the fleet os and that is one of their big selling features which they'll be charging for on sort of a monthly subscription basis after an initial trial period so i think i think you get one year free connectivity with them okay so this is the earnings call now keep in mind anytime you look at the investor presentation these sort of pamphlets that they hand you in the shareholder letters and all this this is designed to be marketing right this is designed to get people excited about a company or brand and i generally recommend being very skeptical when you read this one of the things i wrote down over here which actually spawned uh my thought process was okay so if you have 10 000 plus employees as of december 15th that means if if you pay all of them an average of 50k plus stock based comp stock based comp is obviously dilutive but let's just say 50k that's 500 million a year you're spending 40 million dollars a month in employees uh your your burn is is something to consider now 40 million a month for a company that's burning that just burned over 1.3 billion in a quarter is a drop in the bucket so the employees are not going to be your main cost driver here but there are going to be some other things that are cost drivers okay so there are a few things written down here on the balance sheet that i want to talk about first it's worth noting on their first introduction to the market essentially to public markets they raised 11.9 billion dollars via an ipo the company's worth about 92 billion dollars right now they raised 11.9 via ipo this is great this is your first two raw this is when we get the excitement the thing goes to the moon and then the momentum dies and it falls back down we're down from you know 170 back to 98 or 99 where we sit right now about a 92 93 million dollar billion dollar market cap excuse me uh something that i do think is going to be a headwind in addition to the headwind that we got today which was misproduction keep in mind we're going to miss production in other quarters the supply chain issues that we're facing we're going to face until probably the beginning of 2023 when things really start getting ah a lot a lot more relaxed it's still gonna be tight in 2022.
so i do expect probably for the four quarters of 2022 production to be honestly a nightmare it's going to be so annoying and people are going to be so frustrated with rivien uh and and the same would be true for even lucid and this is very very normal the beginning of the s-curve is a nightmarish and if you're going to be an investor in rivian you really got to have the the cojones to to huddle through that it's gonna be hard but anyway right now one of the things that concerns me a little bit is after their 11.9 billion dollar raise we're only sitting on 5.1 billion dollars of cash now i understand they use some of the money to expand their ppe which is their property plant equipment they use some of the money to purchase more consumables uh presumably these current assets that they have here uh and and uh well i mean you use your money when you when you're running a business right but the problem is at how is how much they're burning because they're trying to build out their sales centers they're they're looking at other real estate for expanding uh their charging network they've got so many candles burning at the same time it's sales it's the charging network it's the advertising platform it's actually the manufacturing and the hiring and the training and the supply chain relationships uh finding different vendors when certain ones don't work out for certain portions of the assembly process switching vendors is a nightmare it's a disaster everything takes longer than you expect anyway when you put all of this together you're in a situation where okay cool we've got 5.1 billion on the balance sheet but wait a minute we're burning 1.3 at the moment per quarter if you burn 1.3 per quarter then you know you just do a simple 5.1 divided by 1.3 and you start realizing oh y'all not gonna make it four quarters you're not going to make it through 2022 without having to raise money that's fine we expect the company to raise money it's just that's going to be another headwind which is a problem because when a stock starts going down here's what happens when when a stock starts going down so i'm going to say starts fall right okay stock starts its fall traders exit then the companies try to do a fund raise now you get hodlers who exit because they see the price fall because of the dilutive nature of raising money you're creating you're introducing more share supply to the market so uh stock price tends to go down even though you're you're just basically creating more shares but you're giving people more cash you still have some form of a market dilution that occurs and so that's where you get some huddle folks who exit and in my opinion that's usually the time you want to buy is when the traders are gone the euphoria is gone the hodler's exit and that potentially for me is going to look a lot like this we're going to get a miss here on q3 let's call for uh you know probably you know a miss when they when they report their q4 but we're already kind of pricing that in but then we would be looking at forecast for for q1 when this comes out because that'll probably come out in in february or march or whatever and so if we miss you know guidance for q1 then we'll have a double miss and i would guess by before march the company's probably going to want to do a race uh in fact if i were this company i would actually want to do a raise before they report a potential miss for q4 so i probably want to do a raise over here in like january or february and the reason for that is i want to raise money while the stock price is still higher uh obviously it's easier to raise more money when the stock price is higher and and then potentially report bad news uh so that way you've raised your money at that higher valuation and then you know if the stock price sells more that sells off more fine it just creates a buying opportunity so for me i probably want to try to get in uh after a raise and and maybe after the next set of bad news because we know here's what we know with certainty we we know this company's not gonna 5.1 billion dollars is not going to cut it because in addition to them having a cash burn of 1.3 billion dollars right now they also want to build a five billion dollar factory and even though you could get financing it's not like buying a house where you're going to put 20 down construction financing sucks you're probably going to have to burn a few billion dollars just to try to get this thing started to acquire the land it's going to cost you money up front i don't know if you're going to be able to get financing on that until it's actually been improved certainly wouldn't get as desirable financing until it's actually been approved so maybe you can get a construction loan but those are at least 50 down in many of these cases sure you can get incentives this is going to help fort worth offered them 440 million dollars so we're expecting that georgia probably offered them more money but it's not like the state's just gonna fork that over up front usually they just give you tax breaks or or some form of credit once you make progress right so my guess is if they're trying to break ground in mid-2022 on their georgia facility they're gonna have to raise money possibly multiple times in the first half of 2022.
so i do think you have more headwinds than you do have positive catalysts for rivian right now and one of the things that concerns me is that they're even trying to do this other facility now i know it's exciting and it's sexy to announce another facility but you won't believe it but they actually asked that same question in the earnings call and i thought it was brilliant when i saw it oh it's actually right here look at this one question on capacity expansion this is an analyst who's saying this right i thought the idea was to ramp up normal that's normal illinois normal illinois plant ramp that up first to see if everything works and what doesn't work oops and then use those learnings to optimize a selection in the architecture of your second plan so why expand so soon if you're still learning and their response was this is a key element of how we've thought about cascading the programs and how we architected the product development organization to be capable of not only running more than one program and launching more products at once but also have those feedback loops between the different programs listen they said nothing what that whole paragraph was bullcrap okay then they talk about hey you know we're learning things about the van and uh then they say uh here the last line let me just read the last line here you can pause it here if you want to read the whole thing but we'll certainly learn from what we're doing now on the r1 platform and where we're doing the rcv platform and recognizing that those programs fully develop and then launch what you see in terms of the second facility in georgia this is really key for us for an expansion point of view in the time scales associated bringing the plant online really require us to despite that work as you heard earlier or whatever like honestly like i don't know if the transcription was messed up but i didn't really get an answer there uh i got i got like a a total misdirection on like oh well we're we know what we're doing uh unidentified participant here just as a follow-up feedback on earlier bills that you've been delivering uh what's going on where there's issues and how you've been addressing them you know this is vehicle quality when you first invite customers right and this is why they tend to give these vehicles to friends and family and employees right but they didn't really give us any kind of answers on other issues that they're having there they kind of punted on that one as well so it's when i get these kind of punty answers that i do get nervous that they haven't really fully thought it out either i think honestly this 5.1 billion dollars is burning a hole in their pocket and they're like oh my gosh let's let's just go do another factory yeah yeah yeah then then we can then we can have more potential production which makes sense because you know people value companies on on future potential i mean it's one of the first things they put over here in their investor presentation but i have to be really real here i'm concerned that you're going to have more uh headwinds for this company substantially in the first half of 2022 and if they run let's just let's just go through a worst case scenario here let's say uh they they missed their q few q one production goals because they they announced that they're behind as well at the beginning of the year and and they just keep missing so the stock goes down to say 50 okay just as an example say it's a now a 50 billion dollar company okay well it's still a decent valuation i mean that's like a lucid you'd still raise money uh they're going to be able to raise capital so i'm not really worried about their ability to raise cash i think they're going to be okay i think hodlers are not going to love all the cash cash raising that's going on but they're going to raise cash like crazy i think the bigger concern i have is that even though they have the capacity to raise cash they're not going to go bankrupt unless the stock goes down under 20 and it becomes impossible for them to raise money that would be check me that that's that's when you turn into like a canoe i hate to say it but i have big concerns for canoe because how are they going to raise capital the thing just keeps getting cheaper and cheaper and cheaper but as a as an investor here you got to ask yourself do you want to hold through that now or do you wait until the company's actually proven that in normal illinois they're able to produce vehicles at a decent margin and remember folks even though they're trying to get out you know maybe 800 vehicles this year and and maybe they're trying to they're going to try to get 20 000 out next year or whatever look at a company like neo who partnered with an existing chinese manufacturer to manufacture vehicles in 2019 they they got 20 000 vehicles out in 2020 they got 40 000 vehicles out you know now we're finally in 2021 at a place where uh they're they're delivering you know on average probably eight thousand vehicles because they did have a you know one month where they were shut down at a really terrible delivery month i think that was october uh but but you know ramping is relatively slow this is three years and you're going from 20 to 40 to what maybe 80 90 100 maybe hopefully they break a hundred thousand this year ah here you go neo delivered about 80 940 vehicles in 2021 so far as of december uh first so say they deliver another 11 000 here we'll be at like 91 000 or something like that which is fine that's that's that's fine growth don't get me wrong i love that uh but it's still a little bit of an issue because look at this folks 20 to 43 to 90 kind of slow right and that's neo who's partnering with somebody else for manufacturing that already has the manufacturing progress and skills so if we now jump on over to a spreadsheet on rivian and let's say we're really generous let's say they can do 25 000 in 2022 and then they double it and they do basically a neo-style ramp 50 to 100 and then they get to 160.
we'll we'll modify this a little bit okay 160 at a 50 000 revenue per vehicle now the lifetime revenue per vehicle is expected to be somewhere around 66 000 but they're not going to get that right away that's lifetime with charging and all that so i'm just going to discount that out i'm taking that out and i'm going to go ahead and run them with a 25 gross profit margin which i think is very very generous it took neo years to get to this but but let's say they you know okay by 2025 we get to 25 gross profit uh after taxes and all of this using a 300 300 uh forward p e ratio we're maybe at about a price of 163 here right but watch how quickly this could get destroyed if their expense on sales or their gross profit goes down by about five percent so their expense on sales rather than being 75 is 80 then then the stock price literally falls by by well two thirds like that that margin is critical and so that's why because margin is so critical i question a little bit the wisdom of building another factory before you've actually really ramped up your normal illinois plan and not only have you not ramped up your normal illinois plan but you're trying to do two different styles of electric delivery vehicles an suv and a truck four different vehicles out of one plant remember tesla started with the model s and then they did the model x years later right these things concern me i love rivian i think it's a sexy car i think the company has a lot of potential but it also has a lot of headwinds so i'm nervous i'm not invested in rivian i want to be invested in rivian but i think i've made clear in this video where i would invest and where i wouldn't so anyway these are my thoughts on rivie and hopefully this was helpful to you like my perspective s bye
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