By Leo Clement, Olivier Baverez, and Martin Palomar (HEC Paris)
Photo: Stephen Leonardi (Unsplash)
Summary of IPO
EV companies cause great upheavals in the financial markets when they go public. Although it is a relatively new industry, with only a few names like Tesla having hit the market over the past decade and a half, their valuations soar instantly upon going public. Expectations for this industry’s performance is very high, research by Growth Market Report expects a 21.3% CAGR until 2028.
Despite the company not having turned out any significant record over its history in existence, Rivian was able to surpass the capitalization of Volkswagen (a company with a multi-billion profitability) at well above $100bn on the first days of trading.
Company and IPO Profile:
Sector(s): Electric cars
Exchange floated: NASDAQ
Amount raised: $11.9 bn
Offered price and number of shares: Initially 135 million shares at $72-$74, de facto 153 million shares at $78
Valuation and relevant multiples at IPO:
Market Capitalization: $102.2 bn
EV: $98.72 bn
Coordinators/Advisors:
Morgan Stanley
Goldman Sachs
J.P. Morgan
Notable investors:
Amazon
T. Rowe Price
Franklin Templeton
Capital Research
Blackstone
Strategic Rationale
Since last year, the markets have been eagerly seeking out green and electric energy companies. The equity markets and Wall Street institutional investors are confident that Rivian will succeed in capturing the market share currently dominated by Tesla. This trend is reinforced by global pressure for automakers to reduce CO2 emissions on their vehicles. Rivian's commitments and IPO coordinate with the progress of COP26, where many companies had the opportunity to unveil their plans to reduce greenhouse gas emissions and ensure the global energy transition in the transportation sector.
The deal would value Rivian at $70 billion. That's an inordinate amount of money, especially for a company that has so far delivered only a few electric vehicles, mostly to its employees.
But Rivian's strategy is a long-term one. Rivian is currently developing electric vans to help Amazon perfect its last-mile strategy. 10,000 vehicles will be on the road by 2022 and 100,000 by 2030. Rivian has also beaten Tesla, General Motors and Ford to the electric pickup market. The U.S. automaker is already manufacturing the R1T and claims that 1,000 will have already been delivered by the end of 2021.
Market Reaction
Build Up
Rivian was set for a bright future by the reputation of its early investors : Amazon brought in $600m in February 2019, then Ford jumped in with a billion dollars a little over two months later that year. The successive series of investments took the valuation of Rivian from $865m when Amazon first invested to $27bn in January 2021, a more than 30-fold increase.
Rivian was targeting a valuation of $53bn, raising just shy of $8.4bn from a top end scenario of $62 a share. Multiple renowned investors such as Blackstone and Third point were looking to acquire their share of the company.
Launch
Rivian went public on the 10 of November, 2021, on NASDAQ under the ticker RIVN. The initial offering of 153m shares of common stock was made at a price of $78.00 per share. In so doing, Rivian raised $11.9bn, thus raising the largest amount of money raised by a US company, surpassing Facebook’s IPO.
Bullish investors hope Rivian will become the next Tesla, an overwhelming reaction such as the one Rivian’s stock price saw is not a new thing in the EV scene : Tesla and Li Auto both saw their price rise above 40% on the first day of trading.
This euphoria associated to EVs showed on the first day of trading for Rivian : its stock ended at $100.73 per share giving it a market cap of $85.9bn, well above its $53bn target.
This upward trend was quickly interrupted : first by Ford’s announcement stating they had cancelled a project to create a new electric vehicle in partnership with Rivian ; then, a delay of supply and production related issues disrupted the company’s output for 2021, thereby dragging its price down to $97 per share (11/17/2021).
Potential Risks and Downsides
Rivian faces a highly competitive and crowded EV ecosystem. Rivian has to compete with traditional carmakers taking the shift towards EV (Ford, VW, Daimler) and pure EV companies like Tesla. Rivian still has to make itself known to consumers when other companies start selling in substantial quantities: Ford has registered more than 120,000 reservations for its electric pickup (F-150) in 2022.
Rivian will face increased scrutiny as a public company. Even if some investors believe that Rivian is the next Tesla-like scenario, others point to the delay of the company: the company has not built any own charging network and the delivery date of the vehicles is regularly postponed. In December 2021, Rivian announced that it has produced only 650 vehicles on a 1,200 target. If we compare to Tesla, it is interesting to see that the share price surged when the company started to deliver a substantial number of cars, with high profit margins (at about 30%) and strong revenue growth. Tesla also generates revenue with charging facilities, insurance or maintenance. Rivian has none of those. All the IPO figures seem to be disconnected from the reality of the company.
One reason explaining the very high market cap of Rivian is the support of powerful backers like Amazon (20% stake) and Ford (though it is a competitor). Rivian’s development relies much on Amazon’s support. Amazon Logistics is expected to represent a “significant portion of the revenue” (Rivian filling). A big risk for Rivian would be either the loss of a preferred relationship with Amazon or fewer car purchases by Amazon.
Therefore, the biggest risk for Rivian is to demonstrate its production capability. A little delay could severely affect the share price given the fact that the current price reflects enormous growth prospects and optimism.
Sources:
https://www.ft.com/content/e2fb010f-0d29-4e80-8ad7-797973d463f7
https://www.investopedia.com/rivian-ipo-what-happened-and-why-it-matters-5209505