Can Rivian build the framework for success after recent IPO?

Founded in 2009, Rivian is an electric automotive company that has recently developed and produced its first vehicle models, these include an SUV, pick-up truck, and delivery van. They are technological innovators and have pioneered the design of a chassis that contains all the vehicle’s key components. Named a ‘skateboard’ chassis because of its distinctive shape, it means all Rivian’s vehicles are built on the same framework, which can be easily swapped out between models since the chassis is not welded to the main vehicle’s body. The firm also prides itself in minimising their environmental impact and aim to be carbon neutral by 2032. Aside from car production, they are planning to build an electric grid across the United States, to implement their charging stations nationwide.

On November 10th 2021, Rivian underwent its initial public offering (IPO) and debuted at the share price of 106 USD, giving the company a 100 billion USD valuation – the largest IPO since Facebook in 2011. This makes Rivian at the time of writing the second-largest automotive company in the world, ahead of established names such as Ford and General Motors. However, the firm has only produced a dozen vehicles and reported in its most recent earnings report a revenue of just 1 million USD. This is not a new occurrence for the automotive industry, which saw rival company Tesla reach a trillion-dollar valuation this year, despite holding a relatively small market share.

Rivian is largely backed by the reputation of its investors, with Amazon and Ford having a significant stake in the company. Amazon is also Rivian’s largest customer and has pre-ordered 100,000 vehicles for its new electric van fleet, which are expected to be delivered by 2025. However, this could give rise to a significant issue, in which a heavy reliance on Amazon could lead to a large revenue decrease if they decide to contract the production of its delivery fleet to another firm.

The public is becoming increasingly more climate-conscious, and governments are becoming increasingly stricter on clamping down on emissions through regulation. Therefore, electric cars are the automotive industry’s answer to a greener future. Bloomberg Finance released a report in 2020 that projected that over half of vehicles sold in 2040 will be electric, so Rivian is looking to expand in a rapidly growing industry. The founder of Rivian, RJ Scaringe, reflected this in a recent interview, stating that, “1 billion vehicles will have to be switched for electric vehicles in the next 10 to 15 years.” This gives shareholders hope that their investment will see large returns in the future, even though currently the firm has very low revenue.

However, competition is fierce in this industry, with Tesla and Ford being the only American publicly traded car companies that have avoided filing for bankruptcy. In addition to this, General Motors aims to only produce electric vehicles from 2035 and Ford is producing their own electric pick-up truck which will directly rival Rivian’s. These established firms have significantly more brand power and experience in the automotive industry and can afford to undercut Rivian’s current vehicle prices in order to appeal to a wider consumer base. It is crucial then that Rivian capitalise on current consumer interest in the company, and capture market share quickly before these automotive giants can adapt to the new paradigm that is electric vehicles. 

In order to do this, Rivian is prioritising rapidly scaling its production capacity and has set aside 5 billion USD to build a new assembly plant in Georgia, in order to meet its objective of building a million cars a year by 2030. The factory will be fitted with advanced robotics and battery cell production, which has driven up estimated costs considerably. However, labour and material shortages may cause this to be delayed, with the company attempting to provide a solution by sending employees to work closely with subcontractors in order to finish projects within deadlines.

There are many challenges ahead for Rivian. The senior management has little to no experience running a public company before, and the minimum 70,000 USD price for their retail cars limits their appeal to the wider market. Shareholders should also not expect to see Rivian become profitable before the turn of the decade, with the company reporting a 2 billion USD loss so far this year. However, when production capacity increases, the economics of scale should result in seeing a decrease in manufacturing costs. Furthermore, they have raised large amounts of capital due to their IPO and can afford to invest significantly in the infrastructure and development of their vehicles. If Rivian can navigate the difficulties that lie ahead, then they could capture market share in an exponentially growing sector, and lay the foundations to having a successful future.

By Alex De Souza

Sector Head: Dylan Buckley