RIVN - Why Long Tesla And Short Rivian Makes Sense

2024-03-20 12:45:36 ET

Summary

• Rivian Automotive, Inc. may run out of cash in 2-3 years, lacks scale and produces vehicles at negative gross margin.
• Tesla, Inc. has large economies of scale, is in the process of vertically integrating (battery production, lithium refining) and has ample amount of cash.
• Given the possible slowdown in the EV demand in the U.S., persistently unprofitable Rivian may underperform Tesla with Tesla gearing up to sell $25K models.
• A pair trading strategy of going long on Tesla and short on Rivian presents an attractive risk-adjusted opportunity.

Investment Thesis

My thesis is that Tesla, Inc. (TSLA) will survive, while Rivian Automotive, Inc. ( RIVN ) will decline or get bought out at a much lower price by someone....

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