What you need to know about the Rivian IPO

TL;DR

• Rivian’s IPO will be priced at $78 per share, valuing the company at about $66.5 billion.
• Rivian has received strong support by Amazon, which has a 20% stake in the company and has placed an order for 100,000 of its delivery vans.
• The key risk for Rivian is intensifying competition, as Tesla and Ford are launching their own electric truck models at a lower price point.
• Rivian’s first mover advantage is priced at a premium, as its market capitalization would be close to Ford and Chinese EV maker NIO.

What happened?

• Rivian is set to IPO on Wednesday 10 November under the ticker symbol RIVN. The IPO is priced at $78 per share, having been raised substantially from an initial range of $57 to $62. This would give the company a valuation of about $66.5 billion.
• Rivian is a leading electric truck maker developing a sports utility vehicle R1S and a truck, the R1T. The company recently started producing its electric trucks with more than 150 units of its R1T model in October. Rivian targets to product 1,200 units by year-end, and estimates that annual production will hit 150,000 vehicles at its main facility by late 2023.

What does this mean?

• Strong support from Amazon. Amazon owns a 20% stake in Rivian and has placed an order for 100,000 of its delivery vans. According to estimates, Amazon will make a profit of about $13.5bn on its investment in Rivian if the share price of Rivian were to go up to above $100 per share. This will work out to about $135,000 per delivery van ordered by Amazon, more than covering the cost of each one which is at about $67,500. Effectively, Amazon is underwriting Rivian’s success.
• Potential limit to addressable market. According to New Street Research analyst Pierre Ferragu, the global addressable market for Rivian’s SUV and pickup is less than 1.5 million units at a price of above $70,000. As a result, the company faces a “natural ceiling” of 300,000 to 400,000 units per year based on its current pricing.
• Key risk from intensifying competition. Tesla, which has largely focused on electric cars and luxury SUVs so far, will enter the electric truck market with the Cybertruck going into production from 2022. The Cybertruck, which reportedly has more than 500,000 pre-orders, will also be cheaper with a price starting at around $40,000. Likewise, Ford has more than 160,000 non-binding reservations for its F-150 Lightning, the electrified version of its best-selling pickup, also expected to be priced around $40,000.What would Beansprout do?
• Rivian’s first-mover advantage is priced at a premium. While Rivian is a first mover in the electric truck segment, its IPO market capitalization of $66.5 billion would be ahead of established auto companies such as Honda, and close to Ford’s $70 billion market cap. It would also be close to Chinese EV maker Nio, and above that of XPeng which has a more established track record.
• Look at other parts of the EV value chain. For those who are keen to get exposure to the electric vehicle theme without selecting winners, it might be worthwhile to look at an EV or battery ETF.

Would you buy into the Rivian IPO? Share with us your thoughts below