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Rivian's IPO and the EV market


 

Company overview


The electric automaker Rivian was originally founded as Mainstream Motors in 2009 by CEO RJ Scaringe, an MIT grad who studied engineering and lean manufacturing. Scaringe grew up near Melbourne, Florida, where he would work on cars with his neighbor, and spend much of his time outdoors hiking and exploring.


As RJ grew older, he found himself driving miles into nature to hike, and became aware that he was contributing to the pollution of an environment he looked to preserve. As a result, the company was born. Two years after being founded, Rivian was immersed in both electric vehicle technologies and autonomous driving capabilities. From day one, the automaker set out to create luxurious and battery-powered vehicles, but the rugged outdoorsy SUVs we see today weren’t always the focus. In 2011, Rivian unveiled a sporty coupé prototype before the entire project was scrapped. While it seems the coupé was a working prototype, it was probably for the best that Rivian shifted its initial focus to SUVs, as several other EV startups have taken the luxury EV sedan route.



The following is a list of Rivian's key milestones:


  • 2015: Rivian received enough funding to operate research facilities in California’s Bay area, as well as in Michigan.

  • 2017: The company had completed its purchase of a former Mitsubishi facility in Normal, Illinois, to become its North American manufacturing hub (the company received grants and tax abatement from state government for bringing jobs to Southern Illinois).

  • End of 2017: Rivian announced its two alpha prototypes were complete. Less than a year later, the R1T pickup and R1S SUV debuted at the LA Auto Show with production scheduled to begin in 2020.

  • By 2019: Rivian had over 1,000 employees and facilities in the UK in addition to Michigan, Illinois, and California. Among several investors and debt financiers was Amazon, which invested $700 million on top of an order of 100,000 electric vans specifically developed by the company.

  • Ford Motor company also invested $500 million shortly after but terminated its contract during the COVID-19 pandemic, taking its production back in-house.

 

The IPO - A Timeline


Rivian’s stock, trading on the Nasdaq under the ticker RIVN, opened at around $106 per share, a 36% surge from its initial IPO price of $78 per share.

Within minutes of trading, the stock rose as high as $116 per share, a more than 50% jump from its starting IPO price—before paring back gains and finishing the day at just over $100 per share.

While the company’s pricing gave it an initial valuation of $66.5 billion, the stock’s surge means that the electric vehicle company is now worth more than $90 billion.

Rivian raised $11.9 billion from a 153 million share offering in its public market debut—making it the largest IPO haul since 2012, when Facebook went public and raised $16 billion.

The electric vehicle maker is backed by Amazon, which has a 20% stake, and Ford, which owns 12% of the company.

Some investors are betting that Rivian could be the next Tesla: Rivian was the first company to release a fully electric pickup truck, the R1T, with plans to launch its electric SUV, the R1S, this December.

Beyond electric pick-up trucks and SUVs, Rivian is also expanding into commercial vehicles: Amazon is its biggest customer and has already ordered 100,000 of Rivian’s electric delivery vans.


 

Rivian's Expansion Plans


Rivian’s whopping market valuation comes despite its lack of revenue—though it is not the first electric vehicle maker to attract massive valuations under similar financial circumstances. The company expects to lose up to $1.28 billion this quarter, with revenue of no more than $1 million during that period. Rivian said in filings, however, that it has a backlog of over 50,000 orders for its R1T and R1S vehicles, both of which have starting prices near $70,000, as well as an order from Amazon for 100,000 commercial delivery vehicles to be delivered by 2025. This backlog is mainly due to production capacity constraints, which thereby point at the future direction of the funds raised through the IPO: production capacity expansion.


Rivian, which had over 6,200 employees at the end of June, said in its prospectus that it expects its factory in Illinois to produce up to 150,000 vehicles per year. With plans to expand its lineup to three models this year, Rivian has attracted investors with big ambitions to bring electric vehicles to the mainstream, including rolling out battery-powered trucks and SUVs. Additionally, it has drawn the backing of some blue-chip investors, including Ford, Amazon.com Inc. and asset manager T. Rowe Price Group Inc. The proceeds gathered through the IPO will help Rivian expand factory production and speed development of future vehicle models, Rivian founder and Chief Executive Officer RJ Scaringe said in an interview.


Figure 1: Rivian's expanding factory in Bloomington-Normal, Illinois

 

The EV Market


The Global Electric Vehicle Market size is projected to grow from 4,093 thousand units in 2021 to 34,756 thousand units by 2030, at a CAGR of 26.8%. Factors such as growing demand for low emission commuting and governments supporting long range, zero emission vehicles through subsidies & tax rebates have compelled the manufacturers to provide electric vehicles around the world. This has led to a growing demand for electric vehicles in the market. Countries around the world have set up targets for emission reductions according to their own capacity.


Figure 2: Outlook for EV market share by major region

Drivers of higher supply


The US government invested USD 5 billion in 2017 to promote electric vehicle infrastructure such as charging stations. Several governments are providing various kinds of incentives such as low or zero registration fees and exemptions from import tax, purchase tax, and road tax. Furthermore, countries such as Norway and Germany are investing significantly in promoting sales of EVs. Along with these governmental incentives and a new social awareness in terms of sustainability, one of the main drivers of the recent boom of the EVs market is the technological advancement and the production of EV batteries on a mass scale in large volumes, resulting in a decrease in the cost of EV batteries over the past decade.


This has led to a decrease in cost of the electric vehicles as batteries are one of the most expensive parts of the vehicle. In 2010, the price of an EV battery was around USD 1,100 per kWh. However, by 2020, their price fell to around USD 137 per kWh while the price is as low as USD 100 per kWh in China. This is because of reduced manufacturing costs of the batteries, reduced cathode material prices, and greater volumes of production. The prices of EV batteries are expected to fall to around USD 60 per kWh by 2030, which will greatly reduce the price of EVs.


Figures 3&4: EV future market trends

Restraints on the demand


There is a low number of EV charging stations in many countries around the world. This reduces the possibility of public EV charging, therefore also decreasing the demand for electric vehicles. The demand for EVs will increase once there is a well-developed charging network across the world. Most countries are yet to develop such charging networks across their region.


Despite being on the early stages of development on a disruption trend, The EV market seems to show all the prerequisites in terms of investments, incentives, and demand-side forces, to develop a validated and affirmed model and growth over the upcoming years into a new reality in the transportation industry, with positive technological spillovers towards other industries. The disruption trend can be thought of as composed by 4 stages: detection (characterized by early startups and lots of noise), clear development (from the emergence of a validated model), inevitable (when a critical mass of adoption is achieved) and new normal (when the industry matures and is at scale).

 

Final Remarks


Rivian’s debut in many ways defies typical market fundamentals; the startup is barely generating revenue and is still losing money. Wall Street is valuing it more than Ford Motor Co. and about on par with General Motors Co., which are worth $77.4 billion and $86.05 billion, respectively.


The immense investor appeal may come from their faith in the company’s backers, and most importantly Amazon chief executive Jeff Bezos. These investors hope Rivian will become the next Tesla, but to get a true sense of its future, it is worth looking at how other electric-vehicle companies have fared after their IPOs. Rivian’s shares closed at $100.73 per share on Wednesday, 29 per cent higher than its IPO price, and it’s still climbing as you read this report. But a surge in share price is not unheard-of for electric vehicle IPOs. Tesla, along with Chinese carmakers Li Auto and XPeng, saw their share price increase more than 40 per cent on their first day of trading. Lucid Motors and Nio had more modest gains, but their share prices still closed 10 and 12 percent higher than their IPO prices respectively.


The highly anticipated initial public offering, which raised more money than any other U.S. listing since 2014, further illustrates the excitement that has been building on Wall Street for electric-vehicle makers, particularly those like Rivian that are still young and relatively unknown but hold promise in challenging the more-established car companies.


As for all the upcomers in highly hyped sectors with high market multiples and initial valuations, it is of paramount importance to closely monitor the future performance of the company in terms of sales and production capacity, to gauge whether Rivian will effectively be able to deliver on market expectations.



Written By: Ludovico Ghitturi



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