Rivian IPO – The contortionist.

At $70bn+, expect valuation gymnastics.

• How an electric car company that has not yet shipped a single vehicle is worth more than Ford or GM or BMW or many other companies who sell millions of vehicles every year will need some contortion of investing fundamentals to explain.
• Rivian is an electric car company that was founded in 2009 and targets the SUV and commercial markets off a single platform with both manual and autonomous driving vehicles.
• To date, the company has raised more than $10bn with its most recent $2.65bn round in July of 2020 valuing the company at $27.6bn.
• At that time Tesla was trading at around $400bn and now that it is at $700bn, this presumably will be used to justify increasing valuation from $27.6bn to $70bn+.
• I can not find anything remarkable about this company other than the fact that Amazon has already ordered 100,000 vehicles as part of its green migration and presumably it will order many more going forward.
• Rivian uses a “skateboard platform” which is where the batteries and motor of the vehicle sit on a flat plate like a skateboard and then the chassis and interior are built on top of it.
• This is far from unique as Tesla, VW, Hyundai, Gelly, and Foxconn all have something similar although Ford, which has invested in Rivian, will be using Rivian’s platform for some of its vehicles.
• However, Ford will not be using this platform for the F-150 Lightning where production targets have been doubled thanks to strong demand (see here).
• This is crucial because the Ford F-150 pick-up truck is one of the best-selling vehicles in the world and this looks set to continue should Ford continue to execute well in transitioning its fan base from petrol to electric.
• I think that there are also execution questions that need to be asked of Rivian which was supposed to be in production of two of its trucks by late 2020 which subsequently slipped to August 2021 but has again been delayed.
• To be completely fair the pandemic and the resulting semiconductor shortage could explain an awful lot of this delay but at $70bn+ investors need to be 100% certain that this is the problem and not weak execution.
• Rivian needed this head start because the F-150 starts at $39,000 and will be available from mid-2022 while Rivian is charging $67,500 for its vehicle.
• The last thing it needs is for an excellent electric version of the best-selling truck in the world to be available at 60% of the price.
• This is why I think that these delays could be very costly as the opportunity to get a toehold in the market is rapidly evaporating.
• Hence, I have great difficulty in understanding how the shares of this company offer anything but downside at a valuation of $70bn.
• If we assume that the company succeeds in selling 20,000 vehicles next year (of which 10,000 go to Amazon) at $67,500 per vehicle, the shares will still be on 50x 2022 EV / Revenues.
• This is a ludicrous valuation to pay for a vehicle manufacturer when other manufacturers who already sell millions of vehicles every year trade at 0.5x EV / Revenues or less.
• Furthermore, some of these OEMs are making good progress on electrification and have a lot of experience when it comes to making and selling vehicles in volume.
• I would rather own Ford or almost any other regular vehicle maker over this.