AAPL 165.84 0.5091% MSFT 400.96 0.461% GOOG 157.95 1.4321% GOOGL 156.28 1.4212% AMZN 177.23 1.4889% NVDA 795.18 4.3543% META 481.73 0.1372% TSLA 142.05 -3.4002% TSM 129.75 1.6053% LLY 731.33 0.6912% V 272.33 0.9452% AVGO 1224.46 1.6394% JPM 189.41 1.9429% UNH 491.23 -1.9755% NVO 125.26 2.0781% WMT 60.14 1.0247% LVMUY 168.89 0.4222% XOM 120.57 0.5756% LVMHF 851.89 0.4528% MA 456.75 0.2986%

Kalkine IPO Report

Should You Subscribe for the IPO of this EV manufacturer- Rivian Automotive, Inc.

Nov 08, 2021

The Offering

Company Overview

Rivian Automotive designs, develops, and manufactures category defining EVs and accessories. The company markets the products directly to its customers in both the consumer and commercial space. The company has launched the R1 platform with their first generation of consumer vehicle. Initially the company launched its R1T, a two-row five-passenger pickup truck. Next it plans to launch the R1S, a three-row seven-passenger SUV, in December 2021. In commercial market, the company will launch the Rivian Commercial Vehicle (RCV) platform with their first vehicle- Electric Delivery Van (EDV). This vehicle has been designed and engineered by Rivian in collaboration with Amazon.

Source: Company Website

Key Highlights

  • Revenue Engines: The company expects to generate the majority of its revenue in the near-term from the sales of consumer and commercial vehicles, accessories, and regulatory credits.
  • Net proceeds: The company expects to receive net proceeds of approximately $9,722 million or $11,182 million, given that the underwriters exercise their option to purchase additional shares in full at the assumed midpoint of the IPO price of $73.00 per share.
  • Use of Proceeds: The key motive behind this offering is to increase the company’s capitalization and financial flexibility. The company intends to use the net proceeds for working capital to fund growth and other general corporate purposes, including research and development, sales and general administrative matters and capital expenditures. Also, the company might use a portion of the net proceeds to acquire or make investments in businesses, products, offerings, and technologies.
  • Top Shareholders: Top five shareholders of Rivian together hold approximately 77% Class A shares of the company. Amazon.com NV Investment Holdings LLC is the major shareholder in Rivian, holding ~22.4% stake. The Founder & CEO of Rivian, Robert J. Scaringe, holds 1.4% of Class A shares and 100% of Class B shares. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to ten votes.

Source: Company Prospectus 

  • Dividend Policy: The company has never declared or paid any cash dividends. Also, it does not anticipate declaring or paying any dividends in the foreseeable future.
  • High Debt, Higher Balance Sheet risk: As of June 30, 2021, the company has total outstanding debt of $3.0 million. After June 30, 2021, the company has issued, a) $2.5 billion aggregate principal amount of 2021 Convertible Notes in July 2021, which is expected to be converted into Class A common stock in connection with this offering in accordance with their terms, and b) $1.25 billion aggregate principal amount of 2026 Notes in October 2021, which will remain outstanding following this offering.
  • Industry Tailwinds: Shifting consumer preferences and targeted regulatory support, is contributing to the robust demand for EV. Also, trucks and SUVs comprise over 70% of new vehicle sales in the United States and account for most of the profits generated by incumbent automobile manufacturers.
  • Secured 100,000 Electric Delivery Van order from Amazon: Amazon has given an order for 100,000 EDVs, representing the largest order of EVs ever. The company is targeting to deliver 100,000 EDVs to Amazon by 2025.

Source: Company Prospectus

  • Preorders: Rivian had about 55,400 R1T and R1S preorders as of October 30, 2021 in the United States and Canada.

Financial Highlights

Source: Company Prospectus

  • The company’s operating expenses have increased from US$110 million to US$580 million over the past eight quarters. The steady increase in operating expenses reflects the continued advances in development of the R1T, R1S, and EDV vehicle programs.
  • Losses from operations during the Q2FY21 stood at US$580 million, as the company has not yet reported any topline numbers and operating expenses has gone up on sequential quarter basis.
  • Net losses for Q2FY21 stood at US$580 million increased from US$200 million losses reported in Q2FY20.
  • As of June 2021, the company’s cash and cash equivalents stood at US$3,658 million, primarily through net proceeds from the sale of securities and from borrowings.

Key Management Highlights

Source: Company prospectus

Risk Associated (High)

Investment in the IPO of “RIVN” is exposed to a variety of risks such as:

  • Growth stage company: Rivian is a growth stage company with a history of losses. It expects to incur significant expenses and continuous losses for the foreseeable future, even after their initial generation of revenues from the sale of vehicles.
  • Intense competition: There is intense competition in the EV segment with several established players exploring this space.
  • Roaring inflationary pressure: The prices of the underlying metals and commodities (including Lithium, Steel, Copper, Nickel, Glycol and others) used in EV manufacturing have gone through the roof, which is suppressing the margin profile of these companies significantly, amid times when these companies are still not reporting any accounting profit.
  • Other Risks: Other risks include shortage of semi-conductors, supply chain related risk, resurgence in COVID-19 cases, decline in the purchasing power of customers, interest rate risk, forex risk and other macroeconomic risks.

Conclusion

Rivian Automotive Inc, backed by Amazon.com Inc and Ford Motor Co, is targeting a valuation of nearly $65 billion in its initial public offering in the United States. The company is investing aggressively to ramp up its production and has a good order book, including the 100,000 Electric Delivery Van order from Amazon.

However, Rivian is a growth stage company with a history of losses and expects to incur significant expenses and continuous losses for the foreseeable future. Also, the company would witness steep competition from automakers in both the consumer and commercial van markets.

Therefore, the IPO of Rivian Automotive, Inc. would be “Attractive’ only for High-Risk appetite investors.


Disclaimer-

Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.

Kalkine Media LLC, an affiliate of Kalkine Equities LLC, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.