ROIC Dive: Analyzing Rivian’s S-1

(Rivian S-1)
(Rivian S-1)
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Investors have anxiously waited to see Rivian’s metrics after it confidentially filed its IPO in late August. Now the S-1 is public, and we dig into it here.

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Overview

  • Rivian (RIVN) designs, develops, and manufactures EVs and accessories selling them directly to customers in the consumer and commercial markets.
  • The company was founded by Robert Scaringe in 2009, after completing his B.S from Rensselear Polytechnic Institute and his M.S. and Ph.D. in Mechanical Engineering from MIT.
  • The Irvine-based company now employs over 8,000 employees.
  • The company’s Normal, IL factory has an estimated production capacity of 150,000 units annually.

Consumer

  • In the consumer market, Rivian launched the R1 platform with its first generation consumer vehicle, the R1T, a two-row five-passenger pick up truck. The company started making deliveries last month.
  • In December, Rivian plans to start making deliveries for the R1S, a three-row seven-passenger SUV.
  • The brand’s focus is on adventure and active lifestyles.
  • As of September 30, 2021, Rivian had ~48,390 R1T and R1S preorders in the U.S. and Canada from customers who paid a cancellable and fully refundable deposit of $1,000.

Accessories + Services

  • Digitally-enabled financing
  • Telematics-based insurance
  • Proactive vehicle service (maintenance and repair)
  • Flexible membership and software services
  • Comprehensive charging solutions
  • Data-driven vehicle resale program

Commercial

  • The company plans to launch the Rivian Commerical Vehicle (RCV) platform with the Electric Delivery Van (EDV).
  • The EDV is designed and engineered by Rivian in partnership with Amazon – Rivian’s first commercial customer.
  • Amazon has ordered an initial volume of 100,000 vehicles globally. Rivian plans to deliver all 100k by 2025.
  • Along with the commercial vehicles, Rivian will offer FleetOS. FleetOS is an end-to-end centralized fleet management subscription platform with vehicle distribution, service, telematics, software services, charging, connectivity management, Driver+, and lifecycle management.
  • Rivian plans to add more features over time including leasing, financing, insurance, driver safety, smart charging and routing, remote diagnostics, collision reports, and vehicle resale.
  • FleetOS was designed to address mixed fleets of Rivian and non-Rivian commercial vehicles to serve customers at scale.

Rivian Ecosystem

  • Vehicle Technology
  • Rivian Cloud
  • Product Development and operations
  • Products and Accessories
  • Services
  • Data and Analytics

Industry + Market Opportunity

  • EV adoption is becoming more accessible due to lowering cost of ownership.
  • Regulatory requirements and incentives are promoting continued EV adoption.
  • Trucks and SUVs are the fastest growing and most profitable automobile segments. These segments now comprise of over 70% of new vehicle sales in the US.
  • Rivian estimates their total addressable market (TAM) to be $9 trillion and their serviceable addressable market (SAM) – what they believe they can service over the next three years – to be $1 trillion.

Rivian Advantage + Growth Strategy

  • Rivian highlights its vertically integrated ecosystem, diversified business model, and direct customer relationships as competitive advantages in the growing EV industry.
  • The company is also bullish on its scalable, multi-program development capabilities.
  • The key levers of Rivian’s growth strategy:
    • Increase market share in existing markets – additional vehicles at a broader set of price points.
    • Develop and launch next-generation vehicles
    • Pursue international expansion. Right now, the launch is focused on U.S. and Canadian markets. The company plans to enter Western European markets in the near-term.

Financials + Valuation

  • Reports from August show that Rivian is seeking an ~$80 billion valuation.
  • To date, Rivian has raised $10.5 billion from backers including Amazon and Ford.
  • Rivian’s total operating expenses jumped ~160% for the 6 months ending June 30th from 2020 to 2021.
  • R&D expenses rose 134% in that time period.
  • SG&A expenses increased by 245% for the six-month period due to increase in payroll, facilities, and other operational expenses.
  • Since Rivian did not start delivering vehicles until September, the company has reported no revenue.

Analysis

Rivian has the backing and the making of a legitimate EV manufacturer in this space, but the company is still in the early stages of production. Elon Musk famously said he thinks it’s 10x harder to build out manufacturing than designing the prototype. The influx of funds from the IPO will help continue to finance Rivian’s manufacturing and delivery launch. If the $80 billion valuation holds, Rivian will be worth more than General Motors ($77 billion market cap) and Ford (56.5 billion market cap).

Not only is scaling manufacturing for automobiles difficult, but automotive companies are currently facing a semiconductor shortage. In a recent WSJ article, auto industry experts expect the chip shortage to extend into 2022.

From August 30th Morning Cents…

JO: Although Rivian is the most legitimate pure-play EV competitor to Tesla, this is still an $80 billion valuation for a company that is truly pre-revenue and hasn’t delivered automobiles at scale. It could end up being a good investment, but it’s far too speculative for our liking.

We will do a “moonshot” DCF for ROIC members soon.

Join ROIC here!

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