Rivian $80 bln IPO valuation risks electric shock - Reuters

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R.J. Scaringe, Rivian's CEO, introduces his company's R1T all-electric pickup truck at Los Angeles Auto Show in Los Angeles, California, U.S. November 27, 2018. REUTERS/Mike Blake

MELBOURNE, Aug 30 (Reuters Breakingviews) - Rivian Automotive has a good shot at becoming a successful battery-powered vehicle maker. The 12-year-old firm has since February 2019 convinced credible investors including Ford Motor (F.N), BlackRock (BLK.N) and T. Rowe Price to hand over $10.5 billion between them to help develop its all-electric pickup truck and SUV. And it has some revenue already in the bag, as another major backer, Amazon.com (AMZN.O), will buy 100,000 of its vans. Now Chief Executive RJ Scaringe has filed confidentially for an initial public offering. There’s just one snag: an eye-watering potential valuation of $80 billion.

That’s the figure being talked about in news reports. It's just shy of three times the worth investors put on the company in its January funding round. It requires some of the same optimism that has pushed Elon Musk’s Tesla (TSLA.O), another electric-vehicle specialist, to a market capitalization above $700 billion.

Rivian has yet to release any numbers publicly, but chances are it doesn’t make money. That’s the case for fellow upstart Lucid Motors, too, which just went public by merging with a blank-cheque company and has a market value of $34 billion. Run by former Tesla Chief Engineer Peter Rawlinson, Lucid trades at 2.4 times its own revenue estimate for 2025.

Apply the same multiple to Rivian, and it implies sales that year of $33 billion. That’s possible – just. Scaringe’s firm currently operates one factory with capacity to produce 300,000 vehicles a year and is scouting for a second to churn out perhaps another 200,000. At an average price of $75,000, just above what it’s currently charging for orders, at full capacity Rivian would bring in around $37 billion.

Looked at another way, to justify an $80 billion valuation, Rivian would have to generate almost $4 billion of EBITDA in 2025. That’s a rough estimate based on the average enterprise value-to-EBITDA multiple using Lucid’s own projections and Morgan Stanley’s estimate for Tesla.

To get close to either target, Rivian has no room for delays or the kind of problems that created what Musk called “production hell” at Tesla (TSLA.O) and waylaid the launch of its first mass-market car, the Model 3.

Musk, at least, had few competitors. Scaringe doesn’t have that luxury. Ford, for example, already has 120,000 reservations for its electric F-150 truck. Tesla has a pickup truck in the pipeline, too. Rivian's IPO investors could be risking an electric shock.

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CONTEXT NEWS

- Rivian Automotive on Aug. 27 said that it has confidentially filed paperwork with the U.S. Securities and Exchange Commission to prepare for an initial public offering of its stock. The company is targeting a valuation of between $70 billion and $80 billion, Reuters reported.

- The company, which describes itself as an electric adventure maker, intends later this year to start limited production of its first vehicles, the R1T pickup truck and the R1S SUV, with full production to start in 2022. Rivian is also making 100,000 electric vans for Amazon.com and intends to have 10,000 on the road by 2022.

- Rivian has raised about $10.5 billion in funding since 2019. Amazon.com, BlackRock, Cox Automotive, Ford Motor and T. Rowe Price are among its investors.

Editing by Richard Beales and Marjorie Backman

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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