Rivian: Shares Rise on Uber Robotaxi Deal

Key Morningstar Metrics for Rivian Automotive

• Fair Value Estimate
  : $20.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : Very High

Rivian Automotive RIVN announced a partnership with Uber Technologies UBER, wherein the firm will provide up to 50,000 R2 vehicles to be used as robotaxis for Uber’s ride-hailing fleet while Uber will invest up to $1.25 billion in Rivian. Rivian shares were up 4% at the time of writing on March 19 on the news.

Why it matters: Rivian is developing its autonomous driving software with the goal of launching a level 2 product, where the driver must still be ready to take control of the vehicle, in 2026. Rivian aims to eventually improve its software to a Level 4 product, which could be used in robotaxis.

• Under the terms of the agreement, Uber will buy 10,000 R2 vehicles from Rivian to be used in San Francisco and Miami in 2028, with the potential to buy up to 40,000 additional vehicles in 2030. Rivian would enter the ride-hailing market and likely receive a portion of each ride for its software.
• Uber will invest an initial $300 million in Rivian when the deal closes, with an additional $950 million based on Rivian’s software reaching autonomous driving milestones. This will help fund Rivian as the company ramps up its R2 production and develops its autonomous driving software.

The bottom line: We raise our fair value estimate to $20 per share from $15 for no-moat Rivian. We think the firm’s software will improve enough for it to successfully run a geofenced robotaxi operation within a city. This will open a new revenue and profit stream.

• At current prices, we view Rivian shares as undervalued, with the stock trading around 20% below our fair value estimate. We maintain our Very High Uncertainty Rating, as we see a wide range of outcomes for the company, particularly around its autonomous driving software.
• Rivian is currently unprofitable and generates negative free cash flow. Through the launch of the lower-priced R2 vehicle and rollout of its autonomous driving software, we see the firm generating positive free cash flow by 2030.