Rivian IPO Looms Large as Tesla Ignites Bubble Talk: Tech Watch

Market Trading EssentialsNovember 10, 2021

3 minutes read

(Bloomberg) — Rivian Automotive Inc. makes its stock-market debut Wednesday just as investors grow increasingly concerned about extreme rallies in electric-vehicle stocks, with Tesla Inc.’s selloff this week adding to fears of a bubble.

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Rivian, a maker of electric pickup trucks, raised $11.9 billion in the biggest initial public offering of the year. At $76.4 billion, Rivian’s eye-popping market value is higher than EV producers Lucid Group Inc. and Nio Inc.

Those companies have been at the heart of some of the biggest stock-market moves recently as investors bet that the shift away from internal combustion engines will produce huge revenues. For now, though, the companies, Tesla aside, are unprofitable. Rivian lost almost $1 billion in the first half and Nikola Corp., Lordstown Motors Corp. and Lucid don’t even have sales yet.

“Everyone wants to invest in a good business in a space that is going to grow,” said Michael O’Rourke, chief market strategist at Jonestrading Institutional Services. “But it is incredibly dangerous to overpay, especially in a bubble for that growth.”

A slew of deals and policy changes have extended the bubble-like rally beyond carmaking stocks.

Avis Budget Group Inc. and Hertz Global Holdings Inc. surged in the past month after the car-rental companies embraced the adoption of EVs. Laser-based radar maker Luminar Technologies Inc. rallied as much as 37% Tuesday on a deal with Nvidia Corp. for self-driving hardware. And EV charging stocks such as Volta Inc. jumped after Congress passed the biggest U.S. infrastructure package in decades.

The thing is, while these popular stocks often skyrocket, they can just as easily come tumbling down fast. Tesla, for example, plunged 12% Tuesday after a string of negative news — including a Twitter poll by Chief Executive Elon Musk about a possible stock sale and a report of a tweet from investor Michael Burry that said Musk may want to sell some shares to cover his personal debts. It suffered its biggest two-day slump since September 2020, erasing roughly $200 billion in market value.

The valuations across the industry imply the companies will enjoy massive growth. EV leader Tesla trades at about 14.4 times 2022 sales, much higher than the S&P 500’s 2.85 times. Meanwhile, Nikola trades at a whopping 38.5 times estimated 2022 sales, while Workhorse is valued at 11.1 times estimated revenue.

The air has already come out of some of the stocks, with Nikola and Lordstown both collapsing 82% from their 2020 peaks. Lordstown has been under investigations by regulators after an internal probe concluded that prior management made inaccurate statements about pre-orders for its planned Endurance pickup, while Nikola’s founder has been hit with criminal fraud charges alleging he defrauded investors. He’s pleaded not guilty.

Still, not everyone’s skeptical. “I wouldn’t count out the space,” Jay Jacobs, head of research and strategy at Global X Management Co., said in an interview. “When people have tried to bet against that, they’ve for the most part been wrong.”

Indeed, Alibaba Inc.-backed Xpeng Inc. soared 40% on its debut last year and is now trading almost three times its IPO price. But that has of course with some extreme swings — perhaps the nature of the crowded EV space, as very few companies are even producing cars yet. Rivian is one of them, delivering its first vehicles, mostly to its own employees, a couple of months ago.

And there seems to be plenty of investor demand for Rivian stock. The shares priced at $78 each in the IPO, well above the range of $57 to $62 at which they were initially marketed.

“We were surprised at the valuation of Rivian given its relatively early stage of development,” said Gary Dugan, chief executive officer of the Global CIO Office.

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