Rivian: The Most Remarkable Adventure

A Deep Dive Into the 12-year-old, Amazon-backed, EV Adventure Company

Nov 4

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Hi Friends 👋,

Happy Thursday! This is a unique one over here at Not Boring: it’s a Sponsored Deep Dive (you can read more about my Sponsored Deep Dive selection and thought process here), but it’s not sponsored by the company I’m writing about. I’m writing about Rivian’s IPO, but the piece is sponsored by SoFi.

Before we get to the piece itself, I want to say a few words about why I’m writing it.

SoFi is the only place regular retail investors can buy IPO shares of Rivian at the same time as the institutions. Retail investors getting IPO access is a new phenomenon, so we need new resources.

A typical Initial Public Offering follows the same pattern:

A company decides to go public.
That company chooses a syndicate of investment banks as its underwriters, including a lead-left underwriter, the bank responsible for running the process.
The banks help the company file an S-1, the offering document full of company details and the narrative they’re trying to tell the market, and run a roadshow for the company, in which the company’s management team pitches itself to prospective institutional investors.
Investment banks release research reports that they give only to their institutional and high net worth (HNW) clients.
All of the underwriters get an allocation of shares, which they sell to their institutional and HNW clients at an agreed upon listing price to support the IPO. Typically, the company wants investors who aren’t just going to turn around and sell their shares immediately.
On IPO day, shares start trading, and retail investors, like you and me, are able to buy shares from the institutions and HNW individuals who bought them directly from the investment banks.

Nasdaq laid it out clearly in this graphic:

The problem is, if you’re a retail investor, you’re probably going to pay significantly more than the institutions and HNW individuals. That’s a big part of the IPO pop: the difference between the price at which the institutions buy and where the stock closes its first day of trading. According to Nasdaq’s Jay Ritter, the average IPO pop from 1980 to 2020 was 18.4%. It was even higher for tech companies -- 31.2%!

If you follow Benchmark’s Bill Gurley on Twitter, you know that he thinks the IPO pop, and the whole IPO process, is bad for companies. It means tech companies earn 30% less cash than they could for selling the same number of shares directly to the market. It’s also bad for retail investors, like us. It means that we can pay a 20-30% premium to the prices that well-connected institutions paid just hours earlier!

(This should go without saying, but not all IPOs pop! Some crash. DYOR.)

The trade that the companies were making was that they believed that these large institutional buyers would support the offering and hold the stock, giving them sturdy investor bases who would stick with the company and support its price in the public markets.

The traditional IPO model was built for a different time, when private companies were less well-known to investors, and when retail investors were less active direct market participants. Now, software is eating the markets, and retail is getting involved.

And the IPO process is changing, too.

When Rivian, which makes electric trucks and SUVs, goes public next week, two groups will be able to invest in the companies IPO shares at the listing price in addition to the usual suspects:

People who are on the waitlist to buy its trucks and SUVs, through a directed share program (DSP) -- Rivian is setting aside 7% of shares for pre-orderers!
Retail investors who use SoFi.

That’s why we’re here today. I partnered with SoFi to give my take on Rivian and the company’s IPO. Institutions and HNW individuals have access to sell-side research reports; you’re stuck with me.

Rivian’s IPO will be one of the biggest and most hotly-anticipated of the year. SoFi will have no trouble finding buyers to fill its allocation. But this is the very early innings of a transition in which retail investors will hopefully get more and more access to IPO shares in the best deals. Companies are often nervous about retail investors, though. They’re worried we’re less likely to hold shares and more likely to sell on a pop. In order for retail to get more direct access, we need to not fuck it up. That means understanding what we’re buying, or not, and why. Knowledge makes the diamond hands.

So today, we’ll explain the Rivian thesis and some risks so you’re ready.

Disclaimer: This is not investment advice. I am not a registered investment adviser. We don’t know where Rivian will price. You should do your own research. This is just a starting point.

Let’s get to it.

Rivian: The Most Remarkable Adventure

I’ll tell you this about Rivian’s R1S SUV and R1T pickup truck: they drive.

It shouldn’t need to be said, but thanks to Nikola Motors, it does. Last year, in the face of growing skepticism over whether or not its Nikola One truck actually worked, Nikola released this promotional video, “Nikola One In Motion”:

Looks cool. Great music. Inspiring. The truck was, as promised, in motion. Just one problem.

According to Hindenburg Research, “the video was an elaborate ruse—Nikola had the truck towed to the top of a hill on a remote stretch of road and simply filmed it rolling down the hill.”

Nikola was a black eye on the electric vehicle (EV) space. Rivian is a bright spot.

Not only does Rivian’s R1T drive, it drives really well. Kelly Blue Book gushed, “Not only is it a new kind of pickup truck, it is an excellent pickup truck.” MotorTrend was even more glowing, calling the 2022 Rivian R1T, “The Most Remarkable Pickup We’ve Ever Driven.”

Rivian’s mission is to keep the world adventurous forever, which it’s doing by creating downright sexy electric pickup trucks and SUVs capable of handling rugged terrain and jumping from 0-60 in 3 seconds.

After twelve long and winding years, the company is expected to go public next week. It’s planning to raise roughly $8 billion by selling 135 million shares at a price between $57-62 per share, which would represent a fully diluted market capitalization ((expected shares outstanding + options) * share price) of $55 - 60 billion, down from the $80 billion that’s been rumored since the company released its S-1 in the beginning of October.

That would put it right in line with Lucid Motors, which shot up to a $63 billion market cap after it announced that it would be making the first deliveries of its $169k Air last weekend. Lucid is currently valued at a little over $59 billion.

Rivian also just announced that it made its first deliveries of its R1T pickup trucks in October, the first of its three models to come to market. Its R1S SUV is expected to hit the streets in December, and its EDV delivery van, of which Amazon has ordered 100,000 through 2025, is scheduled to start delivering your packages in 2022. As of Halloween, Rivian has 55,400 pre-orders for the R1T and R1S.

Then there’s Tesla. The 800 lb gorilla in the EV space has delivered 627,350 cars this year through the end of Q3. It’s run by Elon Musk, the first person in the history of the world to be worth more than $300 billion, a record he broke last week after Tesla broke a $1 trillion market cap for the first time. He makes Bill Gates look poor.

A week later, Tesla is worth $1.16 trillion. It’s added more than two Rivians to its market cap in single-digit days.

The EV market is hot. Many would argue it’s overheated. People have been screaming that Tesla is overvalued since I originally bought (and sold) TSLA in 2013. They’ve probably been right the entire time, and they’ve lost money practically the entire time. Elon has burned the shorts.

*Tesla Short Shorts, which they sold for $69.420*

People have learned not to bet against Elon, and the other EV companies have been beneficiaries. Remember Nikola? The one whose founder was forced to resign and charged with securities fraud? Even Nikola is worth $5 billion.

The EV industry is the double-beneficiary of the government’s largesse: first, because the government offers tax incentives and subsidies to support the manufacturing and purchase of green vehicles, and second, because low rates and a tireless money printer have propelled the prices of growth stocks.

That’s the backdrop against which Rivian is entering the market. It’s perfect timing for a company and a founder who have taken 12 years to reach this point.

Rivian has no revenue; that’s been well-covered in the press around the IPO. It expects to lose $1.2 billion in Q3 this year as it begins delivering pickup trucks. It will need to spend roughly $5 billion to bring on its next production facility. It’s facing chip shortages that could lengthen delivery delays, and well-funded incumbents who are going all-in on electric trucks. It has no revenue. And yet, it will go public at a nearly $60 billion valuation. That seems outlandish on its face.

But the company actually has a path to upside from there. It’s entering an electric pickup truck and SUV market that is temporarily wide-open. More than 70% of cars sold in the US are pickups and SUVs. The reviews for the R1T have been universally slobbery. And in a market in which companies are valued on a multiple of projected 2025 sales, it has a feasible path to growing into its valuation… if it does everything right.

It’s worth digging in. Like any company, there’s a price at which it makes sense to buy Rivian, and a price at which it doesn’t. That’s not for me to decide for you -- this isn’t investment advice -- but we’ll cover some of the things you’ll need to make up your own mind:

Setting the Stage
The Long and Winding Road to Rivian
Rivian’s Reviews
Evaluating Rivian

Ladies and gentlemen, start your engines.

Setting the Stage

We’ll get to the story of Rivian and all of the juicy details of the EV market in a minute, I promise, but before we do, it’s worth making sure that we’re all on the same page. There are a few facts that will be important to keep in mind and some simple factors that will contribute to Rivian’s value.

First, the facts.

The global automotive market is massive. McKinsey estimates that by 2030, there will be $4 trillion in annual vehicle sales, plus the potential for an additional $2.7 trillion in aftermarket and recurring revenue.

Light trucks are the biggest chunk of the auto market in the US. In 2020, the light truck category -- pickups, vans, and SUVs -- represented 72% of US sales, and IHS Markit expects that share to grow to 78% by 2025.

EV penetration will reach nearly half of all cars sold globally by 2040. Goldman Sachs recently revised its EV penetration and sales estimates upwards significantly, thanks in large part to stricter environmental regulations in the EU and the Biden Administration’s plan to support EVs. They forecast that EVs will make up 11% of global sales by 2025, 25% by 2030, 35% by 2035, and 47% by 2040.

*Global EV Uptake Accelerating, Goldman Sachs*

By 2030, Goldman projects that 26.4 million EVs will be sold worldwide each year, up 8 million, or 43%, from its previous projections.

Putting it all together, it seems like a pretty great time to be selling electric light trucks (and services attached to them).

Rivian itself views its market opportunity as all consumer vehicles, not just electric ones or light trucks. In the S-1, it calculates its consumer TAM as all of the cars sold in a year globally, multiplied by its average selling price plus the $67,900 in additional lifetime revenue from selling services, for a total of $8.3 trillion. It’s serviceable addressable market (SAM) is the same thing, just limited by the total number of cars sold in its bear-term markets: US, Canada, and Western Europe.

That’s a very aggressive definition of TAM, but no matter how you slice it, the market it large enough to support multiple hundred-billion+ dollar companies.