Weekly Brief: Hot-Head BEV Investors Risk Ignoring Legacy Automakers

Commentary by Andrew Tolve

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15th November 2021

Electric vehicle start-up Rivian went public last week in the largest IPO of 2021.

The company debuted with a share price of $106.75, which rose 22% in its first two days of trading to make Rivian the fifth most valuable carmaker on the planet with a $127Bn market cap. To put that in perspective, Daimler is worth $108Bn, General Motors $92Bn, Ford $78Bn, and BMW $69Bn, to name a few of the well-known legacy carmakers that upstart Rivian has already surpassed in market cap. Only Tesla at $1Trn, Toyota at $258Bn, Volkswagen at $142Bn, and BYD at $137Bn are worth more.

All the more staggering is the fact that Rivian currently has only one EV on the market and is losing $1Bn a year.

The start-up does have some strong selling points. Foremost is the fact that owing to government regulations and pledges (and a rapidly warming planet), the vast majority of cars are expected to transition from fossil fuel to battery-powered in the next 10 to 20 years. This Monday President Biden will sign into law a $1Trn infrastructure bill that includes $7.5Bn to build out a nationwide charging infrastructure in the US. Tesla has already proven how rapidly an innovative EV-maker can grow and chisel away market share from legacy carmakers in this environment. It’s Rivian’s potential that makes it so attractive to investors.

The company’s first vehicle, an all-electric pickup truck known as the R1T, started shipping in small numbers to consumers this September. In doing so, it beat Tesla, GM and Ford to market with the world’s first all-electric pickup. Reviews have been very positive so far. The company is expecting to ramp up deliveries significantly in 2022, of both the R1T and its crossover SUV, the R1S. Both should help bring in some income to offset Rivian’s sizable quarterly losses.

Another selling point is the fact that Rivian has already inked a lucrative deal with Amazon, which owns 20% of the start-up, to build a fleet of 100,000 all-electric commercial delivery vans by 2024. A couple weeks ago Tesla announced a similar 100,000 vehicle deal with Hertz, which pushed Tesla over $1Trn in market cap. It’s nice that Rivian has this deal in its back pocket, especially given that Amazon has a vested interest in sticking with Rivian as it builds out its delivery fleet in the coming years. Last week Rivian announced that its deal with Amazon won’t be exclusive and that it has launched an EV commercial delivery van business, which will open for orders in 2022.

Does all of this justify Rivian’s current share price? If I understood the whims of the market and knew how to spot a future star, I would have put $1,000 on Tesla back in 2011 and turned it into $204,000 today. I’m no financial expert. At the same time, I wouldn’t be surprised to see some serious corrections down the road for the likes of Rivian, as investors realize that legacy carmakers can deliver competitive EVs while turning handsome profits, instead of losing hundreds of millions of dollars while trying to learn how to scale their businesses.