Key Points
It’s no secret: I think Rivian‘s (NASDAQ: RIVN) upcoming R2 launch could be a game changer for the EV stock. The R2 will be Rivian’s first vehicle priced under $50,000. Customer deliveries are expected to start this April.
Why is the R2 such a big deal for Rivian? For starters, a big majority of people are looking to spend less than $50,000 on their next vehicle purchase. Excluding the R2, Rivian only has two luxury models that, with options and fees, can easily cost consumers more than $100,000 out the door.
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The R2 should give the company access to tens of millions of new potential buyers, thanks to the lower initial price. How will that translate to the stock’s performance? A closer look at Tesla‘s (NASDAQ: TSLA) history with the Model Y and Model 3 — its first two vehicles priced under $50,000 — sheds light on just how lucrative Rivian stock might be at current prices.
Tesla proves how big the R2 could be for Rivian
Tesla wasn’t always the $1.3 trillion juggernaut it is today. At the start of 2017, the company’s market cap hovered around $35 billion, with shares priced under $16. From a valuation perspective, shares traded at just 5 times sales. This paltry valuation was the case even though the EV maker expected to start shipments of its Model 3 vehicle — its first vehicle priced under $50,000 — later that year.
Sales were limited that year due to production scaling issues. But in 2018, the company sold 140,317 units. In 2019, growth continued with sales of 161,100 units. Then came 2020, a banner year. That year, more than 200,000 Model 3s were delivered to customers.
How much did Tesla’s stock price rise between the start of 2017 and the end of 2020? Roughly 1,440%! By the start of 2021, the company’s market cap had exceeded $670 billion, with a price-to-sales ratio of 23.8 — more than four times the valuation shares received before the Model 3 launch. The start of deliveries for the Model Y in 2020 continued the momentum, with the market now fully onboard with the potential of launching a mass market vehicle priced for big volumes.
Image source: Rivian.
Next month, Rivian could start its own growth journey, similar to what Tesla achieved with its Model 3 and Model Y launches. Yet shares are actually priced much cheaper than Tesla shares were before its Model 3 launch. Right now, Rivian’s market cap is hovering around $20 billion. Its price-to-sales ratio, meanwhile, is just 3.7.
Like Tesla, Rivian plans to follow up its launch with additional sub-$50,000 models — the R3 and R3X. Plus, the company arguably has more potential upside than Tesla did at the start of its journey due to heavy investment into AI and self-driving technologies.
It’s important to stress that Tesla’s stock price didn’t take off immediately once the Model 3 hit the streets. It was primarily long term, extremely patient shareholders that accrued the biggest gains. But with Rivian shares trading at such a discounted valuation before the R2 launch, I’m willing to bet that the company will exceed expectations, likely leading to a sharply improved valuation down the line.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
