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Avoid The Rivian IPO. Bet On EV Suppliers Instead? – Forbes

BRAZIL – 2021/05/11: In this photo illustration the Rivian logo seen displayed on a smartphone … [+] screen. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)
Electric pick-up truck startup Rivian is looking to raise about $10 billion via its IPO this week, with its shares priced at between $72 to $74, per its latest SEC filing, valuing the company at upward of $60 billion. So, is the company a good bet for investors? We don’t think so. While EV stocks are the hottest momentum play in the current market, given the urgency to fight climate change and the solid returns provided by EV bellwether Tesla, we think Rivian’s stock is not worth investing in at the asking price. Let’s take a look at Rivian’s business a bit closer to see why.
Rivian has a couple of things going for it. It has marquee early investors including Amazon, which holds a 20% plus stake, and Ford. The company has two vehicles in its lineup, including the R1T pickup truck and the R1S SUV, which will cater to the most lucrative segments of the automotive market. SUVs and cross-overs count as the most popular vehicle body style in the U.S., while pickups have among the thickest margins. Moreover, the company is also developing a delivery van for Amazon, which plans to deploy about 10,000 vans by 2022 and 100,000 vans by 2030.
However, we have multiple concerns about investing in the IPO. Firstly, it’s not clear what the company’s competitive advantage really is. Tesla, for example, has innovated on the battery, self-driving, and software front while building production capacity relatively quickly. Competition in the electric truck market is also set to intensify. For example, Tesla which has largely focused on cars and luxury SUVs thus far, is looking to enter the pickup market with its Cybertruck going into production from 2022. The Cybertruck, which reportedly has over half a million pre-orders already, is likely to be priced starting at around $40,000 compared to Rivian’s offering which will begin at a much steeper $67,500. Ford is also going to make an electric version of its F-150 pickup, the best-selling U.S. automobile, and the initial demand for the vehicle has also been robust. It’s safe to assume that customers will have several other electric pick-ups and SUVs to choose from in the coming years. The $60 plus billion valuations Rivian is seeking is ahead of established auto companies such as Honda, and approaches Ford’s roughly $70 billion market cap. This comes despite the fact that the company only began to produce its vehicles a few months ago and expects deliveries of just 1,025 this year. There’s too much price risk for the stock at these levels, in our opinion.
Although electric vehicles are the future, investing in EV stocks is somewhat tricky at this juncture, considering the rich valuations of pure-play EV stocks and the relatively low barriers to entry into the EV market, which is seeing a slew of new entrants competing for share. Electric vehicle supplier stocks, on the other hand, should be a safer way to play the broader electrification of the auto industry, without having to pick individual OEM stocks. Check out our theme on EV Component Supplier Stocks for more details.
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