We URGENTLY need to Talk about Rivian Stock [RIVN].

everyone meet kevin here we need to do a

deep dive on what rivien just told us

today we've gotta talk

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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

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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 and folks we'll see in the next

one thanks so much for watching if you

like my perspective check out my

programs on building your wealth link

down below thanks bye