The electric automaker Rivian already has raised billions of dollars from the likes of Amazon and Ford. Why would it want to go public?
That’s the big question from a Bloomberg report that Rivian is talking to bankers about doing an initial public offering, or IPO, as soon as September. The IPO would value Rivian at about $50 billion and perhaps more, according to Bloomberg. WGLT has not been able to independently confirm Rivian’s IPO plans; a company spokesperson declined to comment on the report.
There are upsides and downsides for a young company like Rivian going public.
Several experts told WGLT the timing makes sense, even if it does feel a little premature. The stock market is hot right now. There is excitement about EVs—as seen by publicly traded Tesla’s valuation recently topping $800 billion, despite selling far fewer cars than its legacy peers.
“The reason why you may want to consider going to the public market right now, is the market is pricing you like a technology company, not like a car company,” said Jaime Peters, assistant professor of accounting and financial services at Illinois Wesleyan University in Bloomington. “And that’s probably gonna last as long as Elon Musk continues to waive that magic wand he has and convince people that Tesla is worth that much money.”
Many of Rivian’s existing investors, like Amazon, are in it for the long haul. But the calculus may be different for Rivian’s institutional investors like T. Rowe and Black Rock and their clients, said Peters.
“They need a payoff, and there’s only one way to pay off that size of an investment, and that’s an initial public offering,” Peters said. “You go public and you get new investors to basically buy out your old investors, typically at a really large gain for those investors.”
A fall IPO would make sense because that’s shortly after Rivian plans to deliver its first Normal-made electric trucks and SUVs to customers this summer, said Abhishek Varma, associate professor of finance at Illinois State University’s College of Business.
“They’re going to get the vehicles out and they’ll say, ‘Look, we told you we’ll do it. We’ve done it,’” Varma said. “And they’re gonna go to the market, and investors are going to look at that and say, 'Look, this is no longer a concept company. You can see the reality in front of us.'”
Of course, the No. 1 upside of an IPO is the company gets a lot of money. Rivian has a lot of money. It has privately raised $8 billion since the start of 2019.
But starting a car company ain’t cheap.
Rivian previously said it planned to invest around $750 million in its Normal manufacturing plant. Plus, the company still has to build out its retail, charging and service network to actually deliver a good customer experience, among other costs. And it’s competing against not just Tesla but also pivot-to-EV legacy automakers like GM.
“This is a really expensive business,” Peters said. “Tesla is still raising money.”
Rivian founder and CEO RJ Scaringe, in an interview with CNBC in June 2020, said his company had no plans to go public in the foreseeable future. But he said the company was “open” to additional financing to help support its “aggressive growth plans,” CNBC reported.
“We’re in a position where we’re well-capitalized to launch the products, but we are rapidly expanding and growing and accelerating some of our future products,” Scaringe said. “We’re seeing demand being significantly higher than what we initially anticipated, which is leading us to capacitive for higher levels of volume.”
Going public also would allow Rivian to begin compensating its employees with stock. It also raises its profile; there’s something intangibly sexy about your symbol being on the ticker.
And, there are downsides to going public.
While Rivian is certainly sharing some of its financials with existing investors, that information doesn’t become public. Some if it would if Rivian was publicly traded. It would be forced into playing the quarterly earnings game, where investors and the media judge companies based on whether they hit or missed expectations. That can force some companies to think short-term instead of long-term.
There are exceptions. Publicly traded Amazon, one of Rivian’s backers and fleet customers, has a history of long-term thinking and patience, said Sam Abuelsamid, principal analyst for e-mobility at Guidehouse, who is based in Detroit. Amazon’s leaders are willing to re-invest in the company at the expense of short-term profits, he said.
“I wouldn’t be surprised to see Rivian follow a similar path,” Abuelsamid said. “I suspect RJ (Scaringe) is not going to be a leader that’s going to lead based on whatever the market thinks it should be doing on any given quarter.”
If the Rivian IPO does happen, individual investors from central Illinois may want to grab some stock.
Owning stock in a hometown company would be kind of cool, right? For Bloomington-Normal residents, it would be a novelty. State Farm, after all, is privately held. You can’t own stock in other big employers, like Illinois State University or OSF Healthcare.
Not so fast. Big, institutional investors typically get first dibs.
“Whatever is left over is what goes to the general retail investor like you and me. And what we’re getting is seconds,” said Varma, the ISU professor. “By the time it hits the market, and the regular retail investor like you and me get their hands on it, we’d have to pay about a 30% premium on this stock, that’s my guess. At least.”
Normal Mayor Chris Koos said the potential IPO was good news for his town.
Going public may allow Rivian to pursue growth opportunities it hasn't been able to previously, Koos said, including around other types of vehicles and its battery technology.
"They're aggressive with their vision for the future and growth, and the fact that they're here in our community—it's likely they've invested about a billion dollars in plant upgrades and equipment in this community already. That's huge," Koos said.
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