Editor’s Note: This article was updated on Sept. 9, 2021, to correct a typo in the headline and the price of oil.
Rivian has 100,000 reasons to think it can do an initial public offering with a $80 billion valuation.
Amazon placed the order two years ago, expecting deliveries by 2024, with 10,000 on the road next year. This means that, unlike Workhorse Group (NASDAQ:WKHS), it’s based on real orders. Unlike Lordstown Motors (NASDAQ:RIDE), Rivian is well on its way to production. Unlike Lucid Motors (NASDAQ:LCID), it’s not a Tesla (NASDAQ:TSLA) clone. Unlike Tesla itself, it’s not a start-up.
Speedy Electric Delivery
Electric delivery vehicles can make a difference on suburban streets. They reduce both air and noise pollution. (Now if we could do something about the leaf blowers.) They require less service because electric motors are simple.
Every big delivery outfit has plans to go electric. UPS (NYSE:UPS) ordered 10,000 electric vans from Arrival, backed by a Russian billionaire. FedEx (NYSE:FDX) ordered electric trucks from a unit of General Motors (NYSE:GM). The U.S. Postal Service has promised that at least some of its new Oshkosh (NYSE:OSK) trucks will be electric.
But it’s one thing to place an order, quite another to scale production. Chip shortages and battery bottlenecks have made the companies seem like multiple fat men trying to squeeze through a skinny door. Even Tesla’s truck production is being delayed.
In addition to Amazon, Rivian hopes to reach market through agreements with Ford Motor (NYSE:F), which was an early investor. The IPO would give Rivian a higher market cap than Ford, which is worth about $52 billion. Lucid held the previous record for an electric IPO, raising cash on a valuation of $34 billion.
Rivian has already built its plant outside Normal, Illinois, and has announced it will soon begin deliveries of the R1T, an electric pickup truck for the general market. An SUV dubbed the R1S is due next year. The Rivian truck, which has a conventional outer body design, starts at $73,000, against $40,000 for a base Tesla Cybertruck.
Missing the Window?
For investors, the biggest problem with this IPO is that it missed its window.
Production problems and public skepticism soured investors on electric vehicles outside the Tesla halo. Workhorse and Lordstown are down 75% from their highs. Lucid has been cut by two-thirds from its peak in February. Even GM is down almost 25% from its May high.
Critics, like our Joanna Makris, say Rivian is riding on hopes and dreams. (Great Springsteen song, lousy investment position.) Her analysis, while preliminary, could find no justification for Rivian’s proposed valuation.
But there are differences. Rivian is launching its public offering on top of production. Earlier IPOs were launched to raise production capital. Rivian has already raised $10.5 billion before coming public and has firm orders. Amazon has deep pockets.
But investors have been once burned and are twice shy about the electric car replacement theory. Oil is still selling at $70 per barrel, and gas-powered vehicles remain dominant. Gas station openings can still grab headlines.
The Bottom Line for the Rivian IPO
Electric delivery fleets make sense because their customers, like Amazon, will build charging infrastructure along with them.
The Covid-19 pandemic, the chip shortage, and continuing tensions with China have seriously delayed the electric future. That doesn’t mean it’s not coming. It means consumers no longer believe they’ll live to see it.
My guess is you don’t have to grab this IPO, regardless of reported numbers. Instead of jumping out of the gate, this one will limp out. Think Uber Technologies (NASDAQ:UBER) or, if you’re more optimistic, Facebook (NASDAQ:FB).
The market will drive the price of Rivian stock, not the hype. The market’s view is sour. Decide what you think Rivian is worth and don’t buy until it’s there. GM has a market cap of $71 billion. This should be less.
On the date of publication, Dana Blankenhorn held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.