Rivian IPO Filing: 7 Key Takeaways for Investors

Rivian's Public IPO Filing: A Detailed Overview

Rivian, the electric vehicle manufacturer supported by significant investment from companies like Amazon and Ford, along with prominent institutional investors such as T. Rowe Price Associates and Coatue, has now publicly released its previously confidential IPO filing.

Company History and Growth

Founded in 2009 initially as Mainstream Motors, the company rebranded as Rivian two years later. It has experienced substantial growth in personnel, financial backing, and strategic partnerships in recent years.

For years, Rivian operated discreetly before unveiling prototypes of its all-electric R1T truck and R1S SUV at the Los Angeles Auto Show in late 2018.

Since the unveiling, Rivian has secured approximately $11 billion in funding, with $10.5 billion raised since 2019. This capital has been used to expand its manufacturing facility in Normal, Illinois, significantly increase its workforce, and establish Amazon as a key commercial client.

Operational Details and Location

The S-1 filing reveals that Rivian’s official headquarters are located in Southern California. This clarifies previous listings that indicated Plymouth, Michigan as the company’s primary base.

Workforce and Global Presence

As of June 30, 2021, Rivian employed 6,274 individuals across the United States, Canada, and Europe.

Recent reports to TechCrunch indicate that the company now employs over 8,000 people, demonstrating an accelerating rate of expansion.

Beyond the Illinois factory and Plymouth office, Rivian maintains facilities in Palo Alto and Irvine, California, as well as locations in Arizona, Vancouver (Canada), the Netherlands, and the United Kingdom.

Potential Valuation and Investor Expectations

Current media speculation suggests Rivian could achieve a valuation of up to $80 billion upon its initial public offering.

Numerous investors are optimistic that this valuation will materialize, particularly given the considerable media attention surrounding the company. The TechCrunch team has begun a thorough analysis of the IPO filing to identify key details, potential challenges, and noteworthy aspects.

Key Areas of Analysis

The analysis will focus on the substantial costs associated with establishing an EV company, the reliability of market size projections, Rivian’s proposed post-IPO voting structure, the dual nature of Amazon’s role as both a benefit and a potential constraint, the importance of service offerings, and comparisons to Tesla.

A deeper exploration of these factors will provide a comprehensive understanding of Rivian’s position within the evolving electric vehicle market.

The High Costs of Establishing a New EV Company, Contrary to SPAC Claims

A common assertion is that launching a startup is now simpler and more affordable than ever before. This observation primarily applies to software-focused businesses. However, creating an electric vehicle (EV) company remains a significantly challenging and costly undertaking.

Confirmation of this can be initially observed in the substantial amount of funding Rivian secured during its private phase, solely to reach the stage of vehicle production. More telling, however, are the company’s operational results detailed in its S-1 filing.

Below are the company’s operating results for the years 2019 and 2020, as well as the first two quarters of both this year and the previous year:

It is important to note that the revenue line is absent from the graphic provided. This is because Rivian has historically generated minimal revenue; a logical consequence given the company’s recent commencement of R1T truck deliveries. A small amount of income is visible within the interest section, but this represents the primary source of revenue thus far – returns generated from its substantial cash reserves.

Beyond this, the company has primarily focused on expenditure – investing heavily in its operations, which resulted in an expanding cost structure as it neared full-scale manufacturing. Specifically, the company’s net losses increased from $426 million in 2019 to over $1.0 billion in 2020.

These figures have continued to rise, with a net loss of $994 million reported for the first half of 2021, exceeding the $377 million net loss recorded during the same period in 2020 by a considerable margin.

A major contributor to Rivian’s escalating costs is its investment in research and development (R&D). It is natural for a company developing its initial product line to incur significant R&D expenses. However, Rivian’s R&D spending is increasing rapidly. The company allocated $766 million to R&D in 2020, averaging $64 million monthly. During the first half of 2021, R&D expenditure reached $683 million, or $114 million per month. This represents a substantial investment to prepare the company’s projects for market launch.

The key takeaway is that the financial challenges associated with building an EV company that produces viable products, with a genuine potential for scalability, intensify as it approaches production. Therefore, the financial commitment required to transition an EV company from concept to producing vehicles on the road increases with each passing quarter until the first unit is sold.

This explains the scarcity of successful new automotive companies, particularly in the EV sector. Rivian represents an exception, not the norm, and its financial losses illustrate the obstacles it overcame to reach its current position.

The Questionable Nature of Market Sizing

Rivian, in its S-1 filing with the SEC, presented a substantial valuation of its potential market. This practice of emphasizing market size is common for both early-stage companies seeking funding and those preparing for an initial public offering (IPO). The goal is to demonstrate significant revenue potential to attract investors.

However, these market estimates are frequently inflated. A larger potential market suggests greater future earnings and, consequently, a higher current market value.

Rivian’s Total Addressable Market (TAM)

Rivian defines its total addressable market, or TAM, as follows:

As can be observed, Rivian projects a TAM of approximately $9 trillion. This figure, while impressive, lacks practical significance given the company’s current financial standing.

Currently, Rivian has no substantial revenue history. While the automotive industry is undeniably large, consider the revenue of established players like General Motors.

In Q2, General Motors reported revenues of $34.2 billion, extrapolating to an annual run rate of $136.8 billion. This represents only 1.5% of the $9 trillion TAM claimed by Rivian.

A Matter of Perspective

A simple calculation reveals the disparity. The presented TAM figure appears disproportionately large when compared to the revenue generated by a major, established automotive manufacturer.

Dual-Class Shares Remain a Significant Factor

Rivian’s S-1 filing remains incomplete, containing placeholders until the initial price range is established. Consequently, a definitive understanding of the company’s governance structure is currently unavailable.

However, certain details are already known regarding the share classes.

Please accept apologies for the image quality. The highlighted portion confirms that not all shares will carry equal voting rights, as Class A shares are allocated one vote each.

Class B shares, conversely, will be granted a greater number of votes per share.

Therefore, investors participating in the initial public offering (IPO) will effectively receive a subordinate equity position within the company. This disparity will persist until Class B shares are converted into Class A shares.

While this structure represents a less favorable equity offering, voicing such concerns is often discouraged within the current, highly optimistic market conditions.

Understanding the Implications

The dual-class share structure grants existing shareholders, particularly company founders and early investors, continued control over Rivian’s direction. This control is maintained even as ownership is diluted through the IPO.

Investors should carefully consider the implications of this arrangement before participating in the offering. The difference in voting rights could impact their ability to influence company decisions.

• Class A shares represent the standard equity offered to public investors.
• Class B shares are held by insiders and provide disproportionate voting power.
• The conversion of Class B to Class A shares is a key factor to monitor.

The practice of issuing dual-class shares has become increasingly common among technology companies seeking to retain control during rapid growth. However, it also raises concerns about corporate governance and accountability.

Potential Future Revenue Streams for Rivian

According to Rivian’s S-1 filing, several future business ventures are being considered to generate capital. These represent long-term goals, built upon current strategic decisions, and won’t be realized immediately. Understanding these intentions is crucial for forecasting Rivian’s path to profitability and its future capital expenditures.

Expanding Vehicle Options

A primary focus for Rivian is the development of a broader range of vehicle variants. This will involve offering models at more accessible price points, potentially falling below the current $67,000 to $75,000 price range for its existing electric vehicles.

Global Market Penetration

Rivian intends to expand its market presence beyond North America. Initial efforts will concentrate on the U.S. and Canada, followed by entry into Western European markets. Subsequently, the company plans to target significant markets within the Asia-Pacific region.

Localized Production

To effectively support international sales and reduce logistical costs, Rivian is planning to establish localized production facilities. This signifies an investment in building additional factories in key global locations.

Integrated Energy Solutions

Rivian aims to provide comprehensive energy solutions, encompassing integrated hardware like charging systems, power generation, and energy storage. These offerings will be coupled with software-based energy management solutions for residential, industrial, and commercial applications.

Commercial Fleet Dominance & Autonomous Technology

The company envisions expanding into both consumer and commercial vehicle sectors. The commercial sector is particularly noteworthy, with Rivian aiming to become the largest operator of a centrally managed EV fleet. This strategic position is expected to facilitate the development of future services, including autonomous mobility solutions for both people and goods.

Beyond Vehicle Sales: A Services Marketplace

Rivian plans to diversify its revenue streams beyond direct vehicle sales. A key component of this strategy is the creation of a marketplace for features and services delivered through over-the-air software updates.

Additional Service Offerings

These services could include advanced driver-assistance systems, automated driving capabilities, as well as integrated financing and insurance options. This focus on services represents a significant opportunity for recurring revenue and enhanced customer engagement.

Amazon's Dual Role: Benefit and Potential Risk for Rivian

The Rivian S-1 filing references Amazon a significant 81 times. This high frequency reflects Amazon’s position as both a substantial investor in Rivian and a key customer.

According to the filing, Amazon currently holds at least a 5% ownership stake in Rivian, although the precise figure remains undisclosed. Ford similarly possesses a stake exceeding 5%, alongside numerous other investors.

Amazon as a Core Customer

Beyond its investment, Rivian’s commercial vehicle strategy is heavily influenced by Amazon’s needs. This alignment is logical, considering Amazon’s anticipated purchase of approximately 100,000 vehicles from Rivian.

It is reasonable to suggest that the agreement with Amazon was instrumental in Rivian’s ability to secure its funding. The projected future revenue from this deal provided a strong foundation while the company operated privately and generated minimal revenue.

The Intertwined Fate of Rivian and Amazon

However, Rivian’s close relationship with Amazon presents a double-edged sword – it provides significant benefits, including capital and confirmed orders, but also introduces a notable risk. This is explicitly outlined in the risk-factor section of the S-1 filing.

Investing in Rivian’s IPO essentially constitutes a bet on Amazon fulfilling its commitment to purchase the expected 100,000 vehicles. Furthermore, the success of this venture hinges on agreeable delivery timelines and pricing for Rivian.

Numerous factors could disrupt this plan between the initial delivery of 10 vehicles in December 2021 and the completion of the remaining 99,990 vehicle deliveries to this crucial shareholder.

• Key Takeaway: Rivian’s future is significantly tied to Amazon’s purchasing decisions.

The potential for unforeseen complications underscores the inherent risk associated with Rivian’s reliance on a single, dominant customer.

The Importance of Service Revenue

Within the software industry, services are often viewed as a source of minimal profit. Both emerging startups and established unicorns frequently price services at or near their cost, recognizing them as a means to attract customers for their more lucrative software offerings. Achieving a scenario where a software company doesn't incur losses on its service provision is considered a significant success.

However, Rivian operates under a different paradigm, demonstrating a substantial reliance on service revenue. The company’s S-1 filing explicitly identifies services as a crucial component of its growth strategy, emphasizing the importance of initial customer adoption, ongoing retention, and the expansion of future service options.

What specifically constitutes a “service” for Rivian? The company delineates a range of offerings, including financing and insurance, vehicle maintenance and repair, membership programs, software solutions, and charging infrastructure, alongside its FleetOS solutions.

This encompasses a diverse array of financial products, repair services, software applications, and electric vehicle charging options. Evaluating the potential gross margins across this varied portfolio presents a challenge. Nevertheless, it’s evident that Rivian does not anticipate deriving its entire gross profit solely from vehicle sales.

This approach is arguably prudent. While traditional software companies often view services as detrimental to gross margins, Rivian perceives them differently. The company’s filing clarifies this distinction:

This suggests that Rivian anticipates its combined service offerings to yield higher gross margins than the vehicles themselves. Consequently, unlike the software model, the ancillary services are projected to be more profitable than the core product!

Rivian's Unique Strategy

• Services as a Growth Driver: Rivian actively positions services as integral to its expansion.
• Diverse Service Portfolio: The company offers a wide range of services beyond vehicle sales.
• Margin Potential: Rivian expects services to generate superior gross margins compared to vehicle sales.

Rivian's Ongoing Legal Challenges

Rivian’s initial public offering (IPO) documentation reveals several legal disputes the company is currently addressing. While some details have been previously reported, a review of these matters is worthwhile.

One significant area of contention involves automotive dealerships, entities that aim to operate as intermediaries between manufacturers and consumers for financial gain.

Specifically, a substantial network of dealerships is challenging Rivian’s business model. A lawsuit, initiated in March 2021, requests an injunction.

This legal action, brought by the Illinois Automobile Dealers Association, the Chicago Automobile Trade Association, the Peoria Metro New Car Dealers Association, the Illinois Motorcycle Dealers Association, and “more than two hundred individual franchised motor vehicle dealers” across Illinois, aims to prevent Rivian from engaging in direct sales within the state.

Furthermore, as previously covered by TechCrunch, Tesla initiated legal proceedings against Rivian in July 2020. The core allegation centers around the theft of trade secrets by Rivian and specific individuals.

The lawsuit also includes claims of breach of contract and violations of the California Computer Data Access and Fraud Act, directed at individual defendants but not Rivian itself, as detailed in the S-1 filing.

Rivian has publicly stated its intention to mount a robust defense against both of these legal challenges. Evidence of this commitment is demonstrated by Rivian’s existing response to Tesla’s claims.

Details of the Disputes

• Dealership Lawsuit: Aims to block Rivian’s direct-to-consumer sales model in Illinois.
• Tesla Lawsuit: Alleges misappropriation of confidential information and contractual breaches.

The company is actively working to resolve these issues and protect its business interests. Rivian believes it has strong defenses in both cases.