Start your engines: Rivian is 2021’s biggest IPO

Equities
Investments

Electric carmaker Rivian puts the pedal to the metal with the largest stock market debut of the year so far. Here’s what you need to know.

Rivian IPO

Rivian stock market debut puts the pedal to the metal

Rivian, the Californian EV start-up, has reached a valuation of over $100bn since making its public debut yesterday.

That puts the electric car maker above the likes of established carmakers like GM and Ford. Rivian is now, in terms of market cap, one of the largest car companies on Earth.

It’s quite impressive, given the fact the business is yet to make any substantial revenue or deliver a significant quantity of vehicles.

Rivian shares began trading at $106.75 per share – some 37% higher than initial IPO price estimates. The carmaker was reportedly looking at a $72-74 initial public offering share price ahead of its stock market debut.

Intraday trading reached a high of $119.46 before closing Wednesday’s session at $110.73. On a fully diluted basis, Rivian now boasts a market cap of $100.8bn.

Rivian is expected to generate $11.9bn in capital from its IPO. That makes it the largest US float since Facebook.

The company trades on the Nasdaq under the RIVN ticker.

Big backers bet on EV through Rivian

Shareholders and backers are betting on electric vehicles quite heavily. Amazon has a 20% stake in the business. Ford has claimed a 12% stake, which is now worth a cool $10bn.

How else could explain Tesla’s $1.1 trillion valuation? Elon Musk’s EV manufacturers enjoyed another record-breaking quarter recently, but Tesla does have years of hype and market rep, and actual tangible revenues, to back it.

Electric vehicles do, however, look like the future. Many legacy marques, including Ford, GM, Mercedes-Benz, and Volkswagen, are finally now starting to get the message. Billions in R&D and product development means pretty much all major car manufacturers are planning to go fully electric by 2030.

We’re in the first stages of what could be a complete electric revolution. Tesla is definitely the poster child, but this massive Rivian valuation shows the market is looking for other brands that could make a big splash in Tesla’s wake.

The problem with Rivian, however, isn’t the future, it’s the present. The marque said it was poised to make losses of over $1.2bn in 2021. Profitability will not be on the cards for quite a long time.

Then there is the problem with its product offer. As we pointed out in our Rivian IPO preview, the company currently only offers two models: the R1T pickup truck and the R1S SUV. SUVs are fine. They’re possibly the most popular segment of the electric vehicle market. They certainly are in China, which is the world’s largest auto market.

But where Rivian could go wrong is by focussing on the R1T. What’s interesting is that Ford is one of the start-up’s key stakeholders – but is actually shaping up to be one of its largest competitors in the electric pickup sector.

Ask any American to think of a pickup truck and they’ll inevitably picture a Ford F150. The F150 has been the gold standard for pickups ever since it was launched in 1948. 900,000 F150s roll off forecourts across the United States every year.

An all-electric F150 is being launched in 2022 starting at around $30,000. The Rivian R1T’s base model begins at around $70,000. Rivian says it has 50,000 pre-orders for the R1T. Ford already has 160,000 for its electric F150.

This also discounts further electric pickups from the likes of Chevrolet and other GM brands.

The auto industry is tough. Companies like Ford and GM have already been building cars for over a century. They know how it works. While Silicon Valley may be labelling them dinosaurs, it seems odd to write such carmakers off completely and focus entirely on untested start-ups.

Even Polestar, the all-electric luxury spinoff from Volvo Cars, is only expected to fetch a $9-10bn valuation when it goes public.

Still, according to this huge valuation, it appears investors are putting all their chips on the newcomers. EV stocks can be some of the hottest equities to watch.

Where next for Rivian?

Rivian will now begin ramping up its production capabilities and start delivering vehicles. It’s about time it generated some revenue. Estimates suggest the business will create $0-1m in revenues in 2021.

Having enjoyed one of the largest floats of modern times, Rivian now has the cash to spend on factories and getting vehicles out to the public. It recently spent over $1bn in building a factory in Normal, Idaho. Reports say a further $5bn could be spent on a battery and vehicle production site somewhere in the US and another $1bn on a factory in Bristol in the UK.

Deliveries of the R1T are underway with the R1S expected to hit the roads by 2022. Rivian claims it currently has the capacity to deliver 150,000 vehicles a year.

One key long-term order for the business has come from shareholders Amazon. The eCommerce behemoth has contracted Rivian to deliver 100,000 vans and commercial vehicles by 2030. This could be a potentially lucrative segment for Rivian – but again it will be up against Ford. Ford says it has already sold out of pre-orders for the electric version of its ubiquitous Transit van.

It’s time for Rivian to put its money where its mouth is. There are over a billion vehicles worldwide that could be replaced if the electric revolution can continue unabated. But the shadow of Detroit muscle and European production heft still looms large. Rivian will have to move fast if it wants to out accelerate the motoring world’s biggest names.