Rivian – The contortionist pt. III.

The public market will take no prisoners.

• Rivian’s valuation at IPO of $60bn (post-money) is lower than the $80bn mooted but it is still way above anything that a reasonable investor would consider fair, meaning that this green management team has to execute flawlessly to avoid ruthless punishment.
• Rivian is aiming to raise $8.4bn at around $62 per share (top end of the range) which would value the entire company when it floats at around $60bn at a price of $62 per share.
• There is no shortage of interest and Amazon which already owns 22.4% of the shares has expressed interest in also participating.
• A lot of this interest is being supported by the recent rally of Tesla which has been key to driving the FOMO (fear of missing out) investment in the electric vehicle sector which completely ignores any form of rational investment methodology.
• Hence, the immediate term outlook is that this IPO is likely to be successful and could even see a rally in the early days of trading.
• However, eventually, reality will be brought to bear which is that Rivian is a high-risk start-up despite having powerful backers and not the growth company that it claims to be (growth companies need to have revenues while Rivian has none).
• The product has been well received by the technology press but those who really know about these sorts of vehicles say that it is a recreational vehicle and will not fare well when it comes to real work.
• There is nothing wrong with this, but it might mean that Rivian’s products struggle to compete against the Ford F-150 and its peers which are the workhorses of the USA.
• The fact that it is also significantly more expensive than its comparable products is also likely to suppress demand.
• I think that Rivian has a good product but its ability to manufacture, sell and service these vehicles at scale is completely unproven.
• In my opinion, companies at this stage of their development have no business going public.
• This is because the company is not mature and stable enough to withstand the harsh market scrutiny when it inevitably runs into a problem scaling-up and misses estimates one-quarter.
• This will result in brutal punishment and is the last thing that an untested management team that is trying to scale a business needs as it will serve as a great distraction and may even cause further delays to delivering on its promises.
• This could result in the company running out of money, deeply discounted rights issues, or expensive debt issuance all of which would be very damaging to anyone who bought the shares at $62.
• Even if everything goes smoothly and 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 44x 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 (e.g. Ford) and have a lot of experience when it comes to making and selling vehicles in volume all of which lies in front of Rivian.
• I would rather own Ford or almost any other regular vehicle maker over this at this price.