IPO watch: Is Rivian really worth $70bn?

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Electric vehicle builder Rivian is going public very soon with an ambitious IPO price. Is this really justifiable?

Rivian IPO

The Californian EV manufacturer is ready to go public

Rivian’s initial public offering is scheduled for Tuesday 9th November.

The carmaker is hoping to emulate rival Tesla by starting from a strong capital base before launching into the stratosphere. For context Tesla, which just celebrated a very strong third quarter, started from a $75bn initial valuation and is now, somehow, worth $1.1 trillion.

Rivian recently updated its SEC filing to include higher IPO pricing. The California-based brand will offer 135 million shares worth between $72-74, an upgrade from the planned $57-62 price originally offered.

At the top end of the range, and if underwriters exercise an option to purchase an additional 20.25m shares, Rivian could launch with a value between $65-70bn. It also hopes to raise some $10bn in capital on its stock market debut.

Seed investors, which includes big names like Amazon, have committed to buying $5bn worth of Rivian shares once it goes public.

Its potential market capitalisation puts the EV start-up over and alongside some more established global automakers. Ford and GM, both titans of the car manufacturing world, hold market caps around the $70-80bn mark for example. Honda is worth a total of around $55bn.

Rivian’s self-appointed valuation seems very ambitious for a carmaker that has yet to deliver even a fraction of the vehicles the aforementioned marques do every quarter, let alone every year.

The most recent vehicle maker IPO was Volvo Cars which resulted in a valuation of around $18bn for the Swedish firm.

Rivian’s future plans

Rivian’s goal is to establish itself as one of the EV world’s leading lights. Who wouldn’t after Tesla’s meteoric rise?

Right now, the marque’s line-up consists of just two “adventure vehicles”: the R1T fully-electric pickup truck, and the R1S SUV.

Both are rugged go-anywhere vehicles – something more in line with the whims of American outdoorsman than chic, city-dwelling Europeans which Tesla or Polestar currently appeal to.

Rivian claims it currently has the capacity to deliver 150,000 vehicles annually. Its R1T pickup is already on the market, priced at a cool $67,500 for the entry-level vehicle. That’s quite a lot for what is essentially a utility vehicle. Going back to Ford, its flagship F150 model starts at less than half the cost of an R1T.

We are dealing with economies of scale here, however. As Rivian starts to make more, assuming Americans make the switch from the most popular pickup model of all time to this new electric rival, then the cost of an R1T could drop. However, the Ford F150 Lightning starts at conventional F150 prices when it launches in 2022.

The R1S starts at around $70,000. That’s more in line with other luxury SUVs and seems more sensibly priced than the R1T.

Given the popularity of SUVs in general, and particularly electric SUVs, this writer thinks this is the horse Rivian should be betting on. Deliveries of the R1S begin in December.

All told, Rivian says it is on track to deliver 40,000 vehicles across 2022.

According to the carmaker, however, it is a big commercial order for Amazon to fulfil: 100,000 electric vans for the eCommerce behemoth’s delivery fleet. Rivian said it would be working on these for the next few years at least.

A crowded marketplace could hamper Rivian profitability

Carmakers rarely become profitable in their first few years. This is a tough industry and mass production is even tougher.

The company posted net losses of over $1bn in 2020, although much of this can be attributed to the construction of a factory in Normal, Idaho. According to its third quarter results, Rivian said losses for 2021 will come to $1.28bn.

Profitability is still some way off – something for investors and traders to be wary of.

Plus, the EV space is getting more and more crowded. Legacy marques, though slow on the uptake initially, are pouring billions into updating their ranges to become fully electric.

Let’s go back to Ford as an example. Rivian says it has over 55,000 pre-orders for the R1T. Contrast that with Ford, which has 160,000 pre-orders for the F150 Lightning. Ford has also “sold out” of pre-orders for the electric version of its ever-present Transit commercial van.

Tesla’s Cybertruck will also be a contender. The Cybetruck, with its futuristic stylings, is said to start for $40,000, offering consumers yet another cheaper truck model to play with. Rivian may have already priced itself out of the market.

Tesla’s massive valuation also comes from tireless decade-long work on the behalf of its management team. It has established market share. It has been an EV pioneer and its market perception as the electric carmaker has done wonders. Plus, it has the relentlessly self-promoting Elon Musk at the helm which ensures headlines, good or bad, for Tesla.

It might seem unfair to compare such a new badge as Rivian to the likes of Ford or Tesla, but the way it has priced its initial public offering suggests these are the types of carmaker Rivian wants to compete with.

I’m not so sure Rivian can really compete. It could be a victim of its own self-confidence.