In late August, electric vehicle startup Rivian filed confidential initial public offering paperwork. Since news of the Rivian IPO broke, Tesla (NASDAQ:TSLA) CEO Elon Musk has given TSLA stock investors some warnings that he is majorly concerned about Rivian.
For years, TSLA stock bears have warned that a wave of new EV competition is coming. Tesla’s window of dominating the EV market free of challengers is soon coming to an end. Tesla bulls say the company’s technology will help it hold into its EV market share. But Rivian and its high-profile investors believe Rivian is positioned to be a heavy hitter.
Red Flag For TSLA Stock
Politics aside, I’ve long believed that Elon Musk and Donald Trump share very similar personalities. Love them or hate them, I’ve written that Trump became U.S. president and Musk became one of the world’s wealthiest people by using the same playbook.
One of the rules in that playbook is to aggressively attack critics and potential threats. Do it early and do it often. So when Trump started publicly attacking someone’s credibility or character, I knew he saw that person or entity as a serious threat.
On August 12, pro-Tesla website Teslarati tweeted that Rivian is eyeing Fort Worth, Texas for a $5 billion manufacturing plant. Musk replied to the tweet and said he recommends Rivian “get their first plant working” before breaking ground on a second plant.
When Bloomberg reported that Rivian is seeking an $80 billion IPO valuation, Musk again chimed in on Twitter.
“Don’t want to be unreasonable, but maybe they should be required to deliver at least one vehicle per billion dollars of valuation *before* the IPO?” he tweeted.
For the record, I completely agree with both comments by Musk. It’s a very risky and aggressive strategy to get multiple factories up and running at once. It’s also insane that a company like Rivian that has a reported capacity to produce just 300,000 vehicles per year would have an $80 billion valuation.
The irony of these two criticisms by Musk are that they have been common criticisms of TSLA stock. Rather than focusing on building automobiles at a consistent profit, Musk has been building factories all over the world, relying on raising tens of billions of dollars in capital. And Tesla’s $728 billion valuation for a company that delivered under 500,000 automobiles last year is just as insane as Rivian’s proposed $80 billion valuation.
What should be important to TSLA stock investors isn’t what Musk said. It’s the fact that he said it at all. If Musk is a genius in anything, it’s marketing and controlling the social media narrative. He knows what he’s doing. If he wasn’t concerned about Rivian, he wouldn’t be drawing attention to the IPO by tweeting about it.
Why Musk Could Be Concerned
There are a couple of reasons Musk could be particularly concerned about Rivian. One reason could be the heavy hitters behind the company. One of Rivian’s biggest investors is Amazon.com (NASDAQ:AMZN). Amazon has participated in multiple Rivian fundraising rounds It also agreed in 2019 to purchase 100,000 electric vehicles from the company for delivery.
Perhaps more importantly, Amazon is Jeff Bezos’ company. Yes, it’s the same Jeff Bezos that is wealthier than Musk and beat Musk in the billionaire space race. The same Bezos that Musk is constantly berating on Twitter. Remember what I said about Musk and Trump? But if Musk doesn’t see Bezos as a true threat at this point, he’s not much of a genius.
Rivian aso has a young, passionate and extremely smart CEO in RJ Scaringe that Musk may see as a threat to the Tesla story. Unlike Musk who has only bachelors degrees in economics and physics, Scaringe has a PhD in mechanical engineering from MIT. Tesla dodged a bullet when charismatic Nikola (NASDAQ:NKLA) CEO Trevor Milton turned out to be an (alleged) fraud. The TSLA stock bull case relies so much on hype and enthusiasm. Musk knows he and Tesla must always be the most exciting brands in the EV market to keep that hype going.
How To Play TSLA Stock
I am not recommending investors buy the Rivian IPO for the same reasons Musk pointed out in his tweet. An $80 billion valuation for a company that has virtually no revenue seems like a huge risk at best. But I think TSLA stock is also a huge risk at its current valuation as well. I would never recommend shorting cult stocks like Tesla or Rivian. But TSLA stock bulls need to understand that Rivian is the real deal. Certainly Elon Musk seems to think so.
On the date of publication, Wayne Duggan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.