What the Tesla Inc vs. Rivian Lawsuit Tells Us about Tesla Stock
Tesla Inc (NASDAQ:TSLA) is taking a rival, Rivian, to court over accusations that the upstart electric vehicle company has been stealing “highly propriety” technology and poaching employees. I’m no legal expert, but this could tell us something about the future of TSLA stock.
So, what does the case reveal about Tesla stock? Quite a bit.
The first piece of information we can glean from it is that Tesla Inc is afraid of Rivian. While not currently publicly available, when Rivian stock does become available on the market, it could be a serious threat to TSLA stock’s dominance.
How do I know this? Tesla Inc wouldn’t engage in the legal proceedings if it wasn’t at least somewhat threatened by what Rivian is up to.
To be fair to Tesla, if its accusations against Rivian are true, it may simply be pursuing legal action as a matter of principle.
Tesla Inc has accused its rival of raiding its staff and looting its intellectual property. In a court filing, Tesla claimed that it caught former employees “red-handed” stealing the core technology for its next-generation batteries for electric vehicles. (Source: “Tesla Amps Up Fight With Rivian, Cites Battery Secrets Theft,” Bloomberg, October 3, 2021.)
“Now apparently under pressure from investors after nearly a dozen years without producing a single commercial vehicle, Rivian has intensified its unlawful efforts,” said Tesla. (Source: Ibid.)
Tesla Inc filed the lawsuit about 14 months ago.
Obviously, I’m not going to say one way or the other whether the case has merit (that’s for the judge to decide), but I will say that this is pretty common practice among large, industry-dominant companies.
Tesla stock is so highly valued, after all, in part because the company maintains something of a near-monopoly over the electric vehicle space. While challengers have popped up here and there, there has yet to be a real threat to Tesla Inc’s market control (even efforts by established automobile producers have come up short so far).
So, we’re accustomed to seeing powerful companies with huge wells of resources try to slow their competitors by bogging them down in litigation. That might not be what’s happening here, and there may have been an offense committed by Rivian; I’m simply trying to lay out all the options.
Again, if Tesla Inc is attempting to bog down its rival in court, it likely means the company is afraid of Rivian. If the lawsuit goes in Tesla’s favor, that could seriously hamper Rivian’s development.
Rivian stock is still a long way from launching its initial public offering (IPO)—or at least, no date has been announced for it yet—but the company has a whopping $80.0-billion valuation.
Rivian announced in August that it was seeking an IPO. The Rivian IPO is backed by Amazon.com, Inc. (NASDAQ:AMZN) and Ford Motor Company (NYSE:F). (Source: “Rivian IPO: 5 Things to Know About the Amazon-Backed Electric-Vehicle Maker,” MarketWatch, October 13, 2021.)
Rivian produces electric pickup trucks and SUVs. Tesla Inc doesn’t currently produce pickup trucks, but has unveiled plans to do so in the near future.
All this to say that a huge portion of the electric vehicle market is at stake here. If Rivian is the first to go to market with a capable electric pickup truck, it stands to reason that Rivian stock could shoot up while Tesla could lose out on a huge revenue stream.
That said, Rivian has many obstacles to overcome before we can deem Rivian stock the next Tesla stock. Still, the potential is there.
TSLA stock, by contrast, could continue to soar if Tesla Inc increases its fleet and boosts its sales figures quarter over quarter with the addition of new, high-selling vehicles (like electric pickup trucks).
To be fair, we’re not dealing with a total zero-sum game; there’s plenty of opportunity for both Tesla and Rivian to succeed. That said, in order to maximize the potential earnings, one company would ideally be able to totally beat out its rival.
And that brings us full circle to the lawsuit.
No matter its outcome, if the case manages to delay Rivian from producing its electric pickup truck, that would be a huge boon for Tesla Inc as it seeks to continue reigning unchallenged as the king of the electric vehicle sector.
On the flip side, Rivian’s success (both in court and in the market) would likely translate to fear among Tesla investors that Tesla stock won’t be able to justify its extremely high valuation. In 2020, Tesla had a price-to-earnings (P/E) ratio of 1,421.4. (Source: “TSLA Price/Earnings & PEG Ratios,” Nasdaq, last accessed October 25, 2021.)
That high valuation is justified by the assumption of Tesla Inc’s continued dominance and growth in the electric vehicle space (as well as its ventures in self-driving cars and home batteries).
If Tesla finds its industry dominance under threat—by, say, Rivian—that could precipitate a substantial collapse in its share price. That means the court case has a lot riding on it.
While I ultimately believe that Tesla stock will continue to be strong for many years to come, the fact is, Rivian poses a real threat to Tesla.
If Tesla Inc’s lawsuit proves unsuccessful and Rivian is able to hit the market and begin peeling away customers from Tesla, that could threaten TSLA stock.