Shares of all-electric pickup truck maker Rivian Automotive (NASDAQ:RIVN) continue to soar on the heels of a spectacular first week. After pricing at $78, RIVN stock now trades at $172 per share — a spectacular 120% gain. Sporting a $152 billion market capitalization, Rivian is the biggest initial public offering (IPO) of the year. It’s also the world’s third-most valuable automaker by market cap, topped only by Tesla (NASDAQ:TSLA) and Toyota (NYSE:TM), which are valued at $1 trillion and $260 billion, respectively.

If Rivian’s stellar debut wasn’t eye-opening enough, here’s another record: Rivian is the first to go public at a $100 billion-plus valuation with no revenue. Until the quarterly period ended Sept. 30, the company had not produced or delivered any vehicles. 

However, none of this is bothering investors. In fact, yesterday’s gain in RIVN stock alone equates to over $15 billion in market value — more than the combined market caps of other electric vehicle (EV) upstarts Nikola (NASDAQ:NKLA), Fisker (NYSE:FSR), Lordstown Motors (NASDAQ:RIDE) and Workhorse (NASDAQ:WKHS).

If you’re on the right side of the recent momentum in EV stocks, congratulations. It has been a great ride. But the question you should be asking now is this: how long will EV stocks keep on trucking? 

The best place to start is to examine ‘the Rivian effect’ on the bellwether of the EV space: Tesla. So far, neither Rivian or any EV upstart has put a dent in the giant’s revenue growth. While both companies make electric vehicles, Rivian’s niche is all-terrain vehicles whereas Tesla focuses on sedans and SUVs.

But the Rivian effect isn’t about competition. It’s about a potential shift in institutional money — a flow out of TSLA stock and into other legitimate alternatives. If investors start to view RIVN stock has the next EV growth pick, large outflows could put pressure on TSLA. Here’s a closer look.

RIVN Stock and ‘The Rivian Effect’

Founded in 2009, Rivian had initially filed to offer shares in the range of $57 to $62. It later raised that range to between $72 and $74. Now, RIVN stock trades at a whopping $152 billion market cap, having scorched the $80 billion implied valuation considered for the pre-IPO company back in September. And if that’s not enough, with $11.9 billion in IPO proceeds, it is also one of the best-funded EV startups in U.S. history. 

Rivian — whose backers include Amazon (NASDAQ:AMZN) and Ford (NYSE:F) — only began building its R1T pickup truck recently. As such, the company will only deliver a handful of vehicles this year. To date, customers have pre-ordered Rivian trucks, but these ‘sales’ consist only of small down payments. Amazon is the company’s first commercial customer, having already placed an order, subject to change, for 100,000 vehicles.

If we’ve learned anything about the EV space, however, it’s that investors don’t care about revenue or earnings right now. EV stocks continue to trend upward. Future potential is the only thing that matters to investors. This sentiment was also clearly echoed after the recent earnings results from EV upstart Lucid Group (NASDAQ:LCID). LCID stock is trading up nearly 24% on Nov. 16 on the Rivian effect as well as enthusiasm for deliveries. After a 130% rise for the past month, the continued climb is clearly counterintuitive to the sell-the-news scenario we’d typically see on a lackluster report.

Choices, Choices  

Several EV makers have come to market via special purpose acquisition companies (SPACs). Institutional investors tend to view SPACs as more speculative early-stage investments. But RIVN stock’s well-capitalized traditional IPO has generated a lot of interest among large mutual funds. 

Rivian’s valuation makes it a legitimate option for institutional investors looking for another large, liquid EV stock besides TSLA. Many observers also see Rivian as a beneficiary of greater U.S. government support for EVs in the newly signed infrastructure bill, as well as greater financial incentives to get consumers to switch to electric cars and trucks.

If significant institutional money flows out of TSLA, those large sales would negatively impact the stock price. Moreover, with Tesla being the fifth-largest stock in the S&P 500 — accounting for about 2% — a shift in money flow could also have a significant impact on the index.

It’s worth watching to see what, if anything, happens to Tesla’s valuation as more EV companies gain traction. Since Rivian’s IPO, TSLA shares have held steady — the exception being volatility related to CEO Elon Musk’s sales of company stock. Ford, which owns a nearly 12% stake in Rivian, has similarly held steady over the course of RIVN’s initial trading.

What Is RIVN Stock Really Worth? 

So far, TSLA and the rest of the EV sector appear unaffected by Rivian’s IPO success. But the potential danger here is that EV valuations are following a model that isn’t sustainable. For example, if Tesla is correctly valued at $1 trillion and Rivian is correctly valued at $100 billion, a company like Polestar (NASDAQ:GGPI) looks cheap with a current pro forma equity value of around $27 billion. 

We don’t have any projected numbers for Rivian since the company went public through a traditional IPO and can’t provide forward projections. However, based on the company’s production plans, analysts say Rivian could do $10 billion in 2023 sales. That would give RIVN stock a multiple of about 15 times estimated sales. This multiple also makes Rivian as expensive as Tesla, which similarly trades for roughly 12 times estimated 2023 sales of $89.5 billion. 

Bullish investors will argue that Rivian deserves a Tesla multiple. But revenue growth is just one metric investors will be looking at in order to justify the stock’s valuation. As Musk himself has pointed out, there are considerable risks ahead for new EV makers. The first is getting to full commercial volume production; the second, generating positive cash flow and earnings. 

The Rivian effect — that is, making extreme valuations look mainstream — should give fundamentals-oriented investors some pause. The bottom line? It’s too early to know what’s the right multiple to pay for Rivian or any of these EV stocks. 

Your comments and feedback are always welcome. Let’s continue the discussion. Email me at jmakris@investorplace.com.

On the date of publication, Joanna Makris 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.

Joanna Makris is a Market Analyst at InvestorPlace.com. A strategic thinker and fundamental public equity investor, Joanna leverages over 20 years of experience on Wall Street covering various segments of the Technology, Media, and Telecom sectors at several global investment banks, including Mizuho Securities and Canaccord Genuity.

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