Rivian Automotive-Mercedes deal: more meaningful (NASDAQ:RIVN)

Michael M. Santiago

Rivian Automotive Inc. (NASDAQ:RIVN) made a big announcement earlier this month regarding a new partnership with premium automaker Mercedes-Benz.

The announcement followed a few setbacks in 2022, including a botched announcement of higher prices for electric vehicles due to inflation, a drop production forecast due to supply chain challenges and a general shift in sentiment in the electric vehicle industry.

I think Rivian Automotive’s deal with Mercedes-Benz is an important step, and the recent pullback presents investors with another opportunity to consider buying the electric vehicle maker’s stock at a lower price.

Rivian Automotive-Mercedes-Benz deal details

Rivian Automotive is collaborate with Mercedes-Benz, a premium-focused automaker, to scale and share the risks of commercial van production in Europe.

According to the MoU, Rivian Automotive and Mercedes-Benz will establish a manufacturing joint venture in Europe, which will essentially help Rivian Automotive establish a production footprint.

The joint venture is formed with the goal of sharing production costs and risks while providing Rivian Automotive with a high-quality production facility outside the United States that will enable it to produce electric utility vans on a large scale. Importantly, the joint venture is focused on minivans and will propel Rivian Automotive’s commercial van expansion plans forward.

Rivian Automotive is currently working with Amazon to deliver 100,000 electric vans that the retailer needs to upgrade its commercial delivery fleet. Deliveries are planned until 2030.

The Mercedes-Benz joint venture will produce two vans, one based on the Mercedes-electric Benz architecture, called VAN.EA, and the other on Rivian’s RLV platform.

The most important takeaway from the MoU is that the joint venture would help Rivian Automotive expand its minivan business footprint and diversify by serving only Amazon as its primary customer.

Rivian Automotive and Mercedes-Benz did not specify the location of the production plant, mentioning only Central/Eastern Europe.

Rivian Automotive will be guided by production guidelines

The MoU does not specify specific production targets and is based on a multi-year schedule. That said, Rivian Automotive’s share price will be primarily determined by the company’s 2022 production forecast, which is centered on the US market.

Rivian Automotive expects to produce around 50,000 EVs, and as long as that production quota is met, the stock could explode higher.

Rivian Automotive’s sales potential has increased slightly (from $6.44 billion to $6.45 billion) since I last wrote about the electric vehicle maker’s upside potential.

Rivian Automotive’s stock price recently fell from $40 to $35 following the central bank’s decision to raise interest rates. Rivian Automotive is trading at a sales multiple of 2.9x based on my projected 2023 sales estimate of $6.0 billion, based on a current (cash-adjusted) market value of $17.3 billion.

I’m a bit more conservative in my estimate than the market because I think Rivian Automotive will have to perform exceptionally well to hit that aggressive $6.45 billion sales target.

Revenue estimate

Revenue estimate (Rivian Automotive)

Why Rivian Automotive might see a lower valuation

Rivian Automotive’s valuation is primarily determined by two factors: sentiment in the electric vehicle industry (which deteriorated in 2022) and Rivian Automotive’s progress in scaling up production and deliveries of electric vehicles. R1T and R1S.

Rivian Automotive reaffirmed its 2022 production forecast in the second quarter, hinting that the electric vehicle maker expects to produce 50,000 vehicles this year.

I think this is a reasonable production target, but if Rivian Automotive misses its production target, shareholders could face significantly lower stock prices.

My conclusion

Rivian Automotive-Mercedes-Benz deal expands Rivian Automotive’s European footprint while boosting commercial van business.

Rivian Automotive’s expansion into continental Europe under a cost and risk sharing agreement with one of the region’s leading luxury automakers is an important development and a watershed moment for the company.

While the joint venture will take years to begin joint production, Rivian Automotive displays the kind of ambitious and bold thinking I expect from a pioneering electric vehicle startup.

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