This analysis was first published in SvD Näringsliv, in Swedish, on November 15th, 2021.
Fewer than a hundred cars have rolled out of the factory — yet Rivian has left auto giants like Ford and Daimler far behind in market value. The explanation is a perfect mix of Tesla, the fear of missing the next stock-market boom, and a strong tailwind on climate.
When a company goes public, it has to list the risks it sees ahead. Rarely has a company been summed up as well as in a single sentence from its own risk list:
“We are a company with an extremely limited operating history that has not generated material sales of our vehicles or other products and services.”
The company in question is Rivian, which went public on the Nasdaq last week.
The American company Rivian sells electric vehicles – or rather, intends to sell electric vehicles. When it disclosed how many cars had rolled out of its factory through the end of October, the number was 56.
Every company has to start somewhere, of course. Toyota sold just over half a million vehicles last quarter, but its history goes back to 1933. Rivian is only twelve years old. There’s still time to ramp up production.
What’s striking isn’t how few Rivian cars are on the road – it’s how the company is valued. As of writing, Rivian has a market cap of around $127 billion – higher than giants like Daimler ($108 billion), Ford Motors ($78 billion) and GM ($92 billion). After Tesla ($1,038 billion), Rivian is now the second most valuable carmaker in the United States.
It’s a stretch, you might think. To make sense of this, you have to start by looking at the company at the very top of the podium.
Elon Musk’s big bet on Tesla has had EV enthusiasts cheering, and the established carmakers sweating. But the happiest of all are probably the shareholders. Over the past five years, the share price has gone up nearly 2,700 percent.
The price action has raised many questions, even from unexpected quarters. Last year, Musk himself tweeted concerns that the company might be overvalued. The stock was at $151 then. Today it trades for over $1,000.
Both funds and retail investors probably wish they had bought Tesla earlier – and perhaps that’s exactly the feeling Rivian is riding on today. Its promises and ambitions look like Tesla’s. Could that create the expectation of a similar share-price trajectory, especially for anyone who missed Tesla the first time around? Not impossible. Seen this way, the stock can almost be viewed as decoupled from the underlying business. It can be more about expected price action than whether the company will grow into a fair valuation over time.
Another variable is the strong macro factors around the climate. Gasoline prices are heading up, and battery capacity for EVs is too. At the same time, big (and somewhat airy) promises came out of the COP26 climate summit on the energy transition.
When market value drifts that far from the business itself, it can easily put the focus on the wrong thing.
That electric vehicles will play a big role in the future of transport is an uncontroversial idea. The real question is who manages to produce them best. Is it the traditional automakers electrifying existing production lines – or is it better to start from scratch and shed the legacy dependencies? A similar comparison can be made between Volvo Cars and Polestar, even though they sit inside the same group.
Rivian is a bet on the latter approach, where you start from zero. But even there, competition is coming from several new directions. Apple’s much-discussed “Project Titan”, for example, is an effort focused on electric and self-driving cars, even if nothing has reached the market yet.
That there is a tailwind for EV companies, including Rivian, is beyond doubt. Official filings suggest 55,400 pre-orders. And maybe more interesting still – Rivian has a high-profile prospective customer and shareholder: Amazon. The retail giant owns 22 percent of Rivian and has previously placed an order for 100,000 vehicles. But the question is whether that tailwind might end up tipping the boat over rather than helping it along. The risk is at least significant.
When market value drifts that far from the business itself, it can easily put the focus on the wrong thing. And right now, Rivian needs to spend 100 percent of its attention on doing one thing: making cars.