Electric Pick-up Trucks: Rivian files for IPO

The electric automotive company, Rivian, is planning to go public on the Nasdaq this week. It is aiming for a $53bn valuation, raising the company just less than $8.4bn from the offering.


Background


Founded in 2009, the California-based company markets itself as a manufacturer of ‘Electric Adventure Vehicles.’ A significant competitor to Tesla, Rivian instead focuses on Sports Utility Vehicles (SUVs) and pick-up trucks - such as its $68,000 R1T model.


What has attracted investor attention is the company’s Amazon backing. Ranked as Rivian’s largest outside shareholder, Amazon holds a 22.4 per cent stake. This involves a lucrative order of 100,000 custom-built delivery vans for its logistic network. Due by 2024, the order is a cornerstone of Amazon’s efforts to have net-zero carbon emissions by 2040.


The market for “EVs” – a gimmick or the future?


Demand for electric vehicles is not consistent across the globe and remains heavily influenced by public policy. In 2020, electric vehicles comprised 10 per cent of 2020’s new vehicle sales in Europe, 5.7 per cent in China, but only 2 per cent in the US (International Energy Agency).


America’s ‘love affair’ with large gas vehicles may be driven by petrol that costs less than anywhere else in the world. A litre of petrol costed 94 cents in the US the week of October 4 - that same litre cost $1.17 in China and $1.86 in the UK (GlobalPetrolPrices.com).


Moreover, low demand may be explained by the simple fact that consumers cannot get their hands on electric vehicles.


“Everything from facility construction to equipment installation, to vehicle component supply (especially semiconductors) has been impacted by the pandemic,” RJ Scaringe, Rivian’s CEO, wrote [Financial Times].


Despite this, the US president, Joe Biden, signed an executive order calling for half of all new vehicles sold in the US to be electric by 2030 in August. Investor confidence in the industry rises as supply chain disruptions decrease and governments continue their carbon emission pledges.


IPO – why now?


Investor appetite in the electric vehicle industry is at an all-time high – one only needs to look as far as Tesla, who became the first carmaker to be valued at $1tn last month. Combined with the backing from Amazon, Rivian may be seeking to capitalise upon this trend and maximise their valuation.


It is worthy to note that Scaringe’s 17.6m shares in Rivian would be worth a total of $1.1bn at the top of the price range.


However, there are significant risks. First, as outlined by the prospectus, Rivian’s Amazon backing is a double-edged sword. A “significant portion” of its initial revenue, as stated in its ‘risk factors’, derives from this deal – any disruption to this relationship would leave the company “materially and adversely affected.”


Moreover, the threat of established car makers. While Tesla is the poster child of the industry, Ford proves to pose the most significant threat. Ford sold 787,000 units of its iconic F-series trucks in 2020 out of a total of 14.4m US vehicle sales. Investing $30bn in the development of EVs by 2025, Ford’s entrance to the market poses an interesting question – will American consumers continue to support well-established car manufacturers, or can disruptors like Rivian steal their loyalty?


Further Reading

https://www.ft.com/content/e123d71e-8644-410c-9b4e-69a25914d867

https://www.ft.com/content/0b45dce6-0cbd-4400-b93d-4c76edc81262

https://www.ft.com/content/cfe41549-18a8-4784-9c6f-7997047a69f9

https://www.ft.com/content/4eb7504e-94ef-4f99-937d-807aa159b282