Three Reasons Rivian’s Stock Hasn’t Crashed And Burned, Yet
Rivian is the latest electric vehicle or EV company to not just garner attention but it raised about $13.5 billion by selling 175.95 million shares at $78 each on November 10. Its share price hit an intra-day high of $179.47 on November 16 and closed at $128.60 on Friday.
By selling 176 million shares the company has just over 891 million shares outstanding. Amazingly for a company that has generated almost no revenue, but maybe not really unexpected given the current excitement around EV companies, at $128.60 the company has a market cap of almost $115 billion.
While the general excitement and long-term potential for electric vehicles is well founded, a company with little to no revenue and a $115 billion market cap will have to execute flawlessly. In the mean time, these are three reasons the shares have not just held their value but risen in their first ten days of being publicly traded.
Amazon has invested in the company and placed 100,000 preorders
Amazon participated in Rivian’s Series A, D, E and F financing rounds paying $1.35 billion and also bought $490 million in convertible debt. Additionally, it bought 2.56 million shares at the IPO, spending $200 million. After the IPO it owns about 18.5% of the shares and has around 16.9% of the voting power.
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While Amazon could always sell some or all of its shares, it is extremely unlikely to do that in the near-term or even in the next five to six years since it bought shares at the IPO and has preordered 100,000 of Rivian’s electric delivery vehicles or EDVs. Per an SEC filing Rivian has agreed, “that until the fourth anniversary of the Initial Delivery Date, whether or not Logistics (an Amazon subsidiary) purchases any EDVs from us, we will exclusively provide last mile delivery vehicles to Logistics, and from the fourth anniversary to the sixth anniversary of the Initial Delivery Date, Logistics will have a right of first refusal to purchase any last mile delivery vehicles that we produce.”
Assuming each vehicle sells for $125,000 they would generate $12.5 billion in revenue. However, the agreement does not restrict Logistics from developing vehicles or collaborating with, or purchasing similar vehicles from, third parties. It also does not contain a minimum order quantity or minimum purchase requirements. Additionally, the SEC filing states, “forecasts, order plans, and purchase orders are subject to modification or cancellation upon notice.”
Over 55,000 preorders for other models
Besides the 100,000 Amazon preorders, Rivian has disclosed that it has received 55,400 preorders for its R1T, all-electric pickup, and R1S, seven-passenger SUV, models. Car and Driver magazine describes these two models with prices ranging from around $70,000 to $75,000. These preorders should generate, as long as not too many get cancelled, about $4 billion in revenue.
Ford has a monetary stake in Rivian
Ford paid a total of $820 million for shares in Rivian’s Series B and D offerings and bought $415 million of the company’s convertible debt offering. The shares are now worth over $13 billion. It owns about 11.4% of the shares and 10.5% of the voting power after the IPO.
Having such a large ownership should make it challenging to sell them anytime in the near future without cratering the stock. However, Rivian and Ford confirmed on Friday that they would no longer partner on co-developing electric vehicles. While Ford probably won’t be looking to sell its shares in the near future, this could create a drag on them, especially if concerns start to float the Ford wants to cash in some of its profits.