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Analysis

Rivian Automotive aiming for big valuation at IPO

Rivian truck climbing a sandhill

Electric truck start-up Rivian Automotive is set to go public this week and is seeking a valuation of as much as $US70bn. Rivian plans to offer 135 million shares priced between $US72 and $US74, up from $US57 to $US62, it said in an updated securities filing on Friday.

Ford Motor Co has a 12% stake, while Amazon.com holds around a 20% stake.

Amazon founder Jeff Bezos and fellow astronauts rode to the launch site in a Rivian SUV when they went to space in July. The e-retailer has an order for 100,000 electric delivery trucks, which Rivian says it plans to provide by 2025.

Rivian only recently started selling its first all-electric truck. It has never recorded any material revenue, and expects to generate $US1m in revenue in the quarter ended 30 September.

From the start of 2020 through to June, the company posted an operating loss of $US2bn and estimated a loss last quarter of between $US725m and $US775m, according to a company filing.

The IPO valuation reveals the premium investors are willing to pay for what they see as the growth prospects of electric vehicles. Rivian has raised $US10.5bn in the private markets since 2019.

Globally, electric vehicle sales are only a small portion of overall vehicle sales, but the total more than doubled in September from a year earlier, accounting for 9% of all vehicles sold, according to a Morgan Stanley research note. They accounted for 3.6% in the US, the bank said.

The Driven says the waiting list for a Rivian stretches to late 2023, and Australia will have to wait till 2024.

Rivian was founded by 38-year-old RJ Scaringe in 2009. He planned to make sports cars. But a few years ago, Scaringe decided there was a bigger market, and a chance to make a bigger environmental impact, if the company manufactured electric trucks and SUVs.

Rivian says it will launch three models by the end of this year from its Illionois factory, which it plans to expand. It says it is also looking for another location for a new factory.

The company will sell cars directly to consumers, like Tesla, bypassing the traditional dealer network. It says it wants to build a network of fast-chargers in the US for drivers to use.

Ford stands to make a return of more than $US7bn on its investment of about a total $US2bn, according to The Wall Street Journal.

Morningstar analyst David Whiston notes: "There's no shortage of potential uses for a cash infusion like that." There is speculation that Ford might sell its Rivian stake and use the IPO proceeds to pay down debt, or finance an overseas restructuring.

In 2009, Daimler paid $US50m to acquire a stake in Tesla of under 10% — a stake the German company later sold in 2014 for $US780m.

Forbes' David Trainer says Rivian has yet to manufacture a meaningful number of vehicles and its forecast production of vehicles looks "highly improbable given Rivian’s lack of manufacturing infrastructure and experience, as well as the intense competition it faces in the EV market".

Let’s now do a bit of an inferring exercise on the current sentiment on a listed stock with sufficient past price action data that has almost a similar business operation to Rivian; to act as a cross reference and a gauge on the likely outcome of the potential short-term share price movement of Rivian post IPO.

The listed stock is Nikola Corp (NKLA), also an EV start-up that produces battery-electric trucks. Nikola reorganised and went public on NASDAQ via a SPAC listing on 4 June 2020. By 9 June, the share price of NKLA has almost doubled and hit an all-time high of 93.99. Thereafter, NKLA staged a horrendous down move that lasted for almost 14 months as it plummeted by -90% inflected by weak sentiment seen in the first nine months of 2021 towards other related EV stocks such as Tesla, NIO, Xpeng and a firm specific investigation by the Securities and Exchange Commission over securities fraud allegations.

From a technical analysis perspective (see chart below), the share price of NKLA has started to exhibit several key positive elements that indicate there may be now light at the end of a dark tunnel. Since its 52-week low of 9.03 printed on 16 August 2021, NKLA has traced out an impending bullish “Double Bottom” configuration in progress since 21 April 2021 which indicates that NKLA may be forming a major base to kick-start a potential multi-month uptrend phase after 14 months of downtrend.

In the short-term, if the 11.80 pivotal support is not broken down, NKLA may see a further push up towards 19.51, the key neckline resistance of the “Double Bottom” in the first step. A daily close above 19.51 is required to trigger the potential multi-month up move. However, a break below 11.80 invalidates the short-term push up scenario for a slide to retest the 9.03 major support.

Hence, given the potential short-term up move that is expected on NKLA, it may trigger a positive feedback loop into Rivian which in turn can create a positive sentiment outlook post IPO listing at least in the short-term. But do note that using such inferring/cross referencing trading strategy is not 100% fool proof and a prudent risk management technique is paramount when trading IPO shares.

Nikola Corp (NKLA) - A potential bullish “Double Bottom” 

Time stamped: 8 Nov 2021 at 10:00am SGT (click to enlarge chart)

Source: CMC Markets

This article is written by Elise Shaw & Kelvin Wong


Disclaimer: CMC Markets is an order execution-only service. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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