Rivian’s $80b road was paved by Tesla

To say it’s absurd that an electric-truck maker that hasn’t yet delivered any trucks to regular customers should seek an $80 billion valuation is to state the obvious.
That isn’t a knock on Rivian Automotive Inc, which announced that it has filed for an IPO confidentially. From what we can tell, it seems like the real deal. It’s just a common-sense observation about cash flow and multiples and the inherent difficulty of building vehicles at scale. And yet, in 2021, it feels almost churlish to point this out.
A big reason for that is Tesla Inc Like some giant celestial body, its $700 billion-plus market value has warped the fabric of market space-time, demonstrating that it’s possible to garner a mind-boggling valuation on the back of minimal profits and expectations of future businesses that are either barely there or simply don’t exist.
In any case, the rumoured Rivian number and Musk’s reaction to it says a lot about where the auto sector sits today.
The potentially massive electric-vehicle market is still up for grabs and, rightly or not, clean-sheet upstarts are prized more highly by investors to win that fight than gasoline-based incumbents. However high a valuation venture capital is willing to buy in at, recent history suggests there’s a strong
likelihood public market investors will be willing to pay more. Rivian, for example, raised private funds only a few months ago at a valuation of $27.6 billion — a lofty level then that seems quaint now.
For a fortunate few, then — Tesla, Lucid Group Inc and Rivian among them — the car industry’s famously voracious appetite for capital consumption is no longer a significant barrier. The “capital junkies,” to use the late Sergio Marchionne’s barbed turn of phrase, have arrived at their bacchanal.
Even though there’s plenty of money available to start a car company, actually making money at it without a hiccup remains as difficult as ever. Rivian is coming to the public markets with
almost impossibly high
expectations and faces intensifying competition. An $80 billion valuation would be a ticket to raising yet more cheap funding but doesn’t provide much room for manufacturing or sales disappointments.
The IPO prospectus isn’t available yet, but Rivian’s current financials can’t be pretty. Ignoring conventional wisdom about learning to crawl before you walk, it’s trying to launch three vehicles almost simultaneously: a pickup, SUV and commercial delivery van. These are potentially lucrative segments, but the size of its ambition magnifies the potential for production setbacks and cash burn.
Customer pre-orders and a contract to supply 100,000 delivery vans to its investor Amazon.com Inc ensures there will soon be some money coming in the door. However, rather than outsource production to save money, Rivian has acquired and retooled a former Mitsubishi plant in Illinois and is already scouting for further sites. It has also developed a lot of technology in house. This helps explain why Rivian has already raised $10.5 billion since 2019 from a cast of creditable investors such as Amazon, Ford Motor Co, T Rowe Price and BlackRock, even before getting to the IPO.
Ford’s backing underscores the chasm that exists between incumbents and challengers. Earlier this year, the Detroit automaker outlined its own plans to electrify its core products — which overlap rather neatly with Rivian’s lineup.

—Bloomberg