Tesla, which is backed by Amazon and Ford, debuted on the stock market with a valuation of $86 billion, though it has yet to deliver any vehicles.
Rivian, an electric-vehicle maker that has been operational for over a decade, just completed deliveries of its first product — 156 pickup trucks — and almost all of them went to employees.
Despite this tiny number, investors on Wednesday credited Rivian with being in the same league as some of the auto business’s most well-known names, such as General Motors and Ford Motor, which manufacture millions of vehicles every year.
Its stock rose 29% in the first day of trading after its initial public offering, putting its market value at $86 billion — comparable to G.M.’s and greater than Ford’s.
The frenzied demand did not emerge spontaneously.
Even with the epidemic’s interruptions, the stock market is up 25% this year. However, investors are now prepared to invest big in businesses in the sector that appear to have potential and exhibit promise.
They’re after the next Tesla, a company that is on track to sell over a million vehicles this year and has captured the stock market for months with a climb that has increased its value to $1 trillion.
Rivian’s performance thus far is promising, but it has a long way to go before proving that it can significantly increase its manufacturing lines. And if the company does not expand quickly — as other automobile manufacturers flood the market — investors’ confidence may be shaken, affecting its financial prospects.
“Anyone who is paying a high price for an I.P.O. in the expectation that it will scale rapidly may be disappointed,” said John Paul Mac Duffie, a Wharton University of Pennsylvania management professor. “Patience and enthusiasm are just right in this situation.”
Tesla’s difficulties with manufacturing caused its cash to drain and its stock to plummet. Investors are banking on a more successful expansion for Rivian and its CEO, R.J. Scaringe, who has a doctorate in mechanical engineering from MIT.
“This is the start of many more steps for us as a public company, and now having the freedom to focus on specific topics much more quickly,” Scaringe added during an interview with Bloomberg TV.
The R1T, a premium pickup truck from Rivian, is meant for drivers who enjoy off-roading. (The I.P.O. prospectus promises that “the world should remain adventurous forever.”) Amazon has ordered 100,000 vans, and they will start arriving next month.
Rivian appears to be damping expectations down. The company said in a recent financial filing that it did not anticipate fulfilling the 55,400 orders for the truck and S.U.V. until the end of 2023.
Even if Rivian avoids major production problems — which is highly unlikely considering the current global supply chains are stretched — it will face fierce competition on many fronts.
“It’s safe to assume that this sector will be more difficult in the next three to five years than it was in the previous three to five,” stated Mike O’Rourke, chief market strategist at Jones Trading.
The deal with Amazon might provide a steady revenue stream. However, Rivian must confront not just Tesla, which is developing a truck, but also from automakers that have significant experience in mass production. In 2019, Ford is expected to start producing an electric F-150 pickup truck, the best-selling vehicle in the United States. G.M.’s forthcoming GMC Hummer will be an electric S.U.V., and it’s working on a Chevrolet Silverado electric pickup.
Consumers might wonder whether Rivian will be able to provide vehicle service. There are no dealers for the company, which plans on selling cars directly to customers. Many buyers complain about Tesla’s same policy of waiting weeks for parts and repairs.
Charging remains a challenge for any firm launching electric cars. While stations are readily available in many metropolitan areas, their numbers are lower in the suburbs and many less-populated regions have no charging infrastructure. Because Rivian expects customers to use its vehicles outside of cities, where the nearest charging station might be several miles away, this could be a significant barrier to adoption.
The major concern for young electric vehicle firms is whether they have enough cash on hand to fund their growth when sales are still slow. Rivian spent $3.5 billion of its cash on operations and capital expenditures between the start of 2020 and the end of June this year. However, it appears that Rivian can finance its expansion in the near future. At the end of September, it had just over $5 billion in cash on hand, and the I.P.O. will provide almost $12 billion in funding.
The IPO of Rivian Inc., a startup that aims to commercializing all-electric pickup truck, was one of the most lucrative in recent memory, surpassing Uber’s 2019 offering by nearly $10 billion. It is smaller than Facebook’s 2012 IPO, which raised $17 billion. Companies have thus far raised $290 billion in 901 transactions this year, compared with $169 billion in 457 deals throughout all of last year, according to data provider Dealogic. The stock market is playing an essential role in channeling cash into new sectors of the economy, such as green-technology firms.
Some investors, on the other hand, believe that money is being thrown at what’s popular rather than being spent to properly identify which firms are truly powerful. “The market’s pricing mechanism is out of whack, and you can’t tell who’s winning,” said Mr. O’Rourke of Jones trading.
“The Tesla vehicle is not the only game in town,” says Mr. MacDuffie, a Wharton professor. “There’s enough room for many players to thrive in the electric vehicle market,” he adds. “It’s not quite a winner-takes-all market. We’re probably more at a rising tide lifts most boats or not every boat situation.”
The early investors in Rivian, Ford, and Amazon are raking in big profits. At the time of this writing, Ford’s Rivian shares were valued at $10 billion while Amazon’s were worth at least $16 billion.
Mr. Scaringe is also a billionaire, and given the current price of bitcoin, his millions could soon be worth millions. Mr. Scaringe’s holdings in Rivian are worth more than $1.7 billion at this time. In addition, Rivian’s board approved a new stock award for Mr. Scaringe that could be worth more than $7 billion if the stock rises as high as $295.