INTRO: Can you guess
what the third largest automaker in the world is?
Volkswagen? GM? Daimler? While those are all great guesses and would usually be correct, we’re
not living in normal times. Last week, the third most valued automaker in the world was actually
Rivian. Rivian peaked at a valuation of $150 billion which is more than Volkswagen. Volkswagen
generally delivers a cool 10 million cars per year. Considering this, how many cars do you think
Rivian delivers? 8 million? 5 million? Well, the answer is actually a whopping 156 pickup trucks.
Now, I don’t wanna bag on Rivian because they’ve worked super hard on their pickup truck over
the past decade and they’ve had to cross so many hurdles to get to market. Moreover, they actually
have a great working product unlike some other notable competitors. So, there’s nothing wrong
with the company Rivian, but there’s no doubt that there’s something seriously screwed up with
the stock Rivian. So, here’s the story of Rivian and how they became the epitome of the EV bubble.
QUIET BEGINNINGS:
Taking a look back, when Rivian was founded in 2009, most people didn’t really care about EVs.
EVs were completely impractical due to their low range and high cost. Hybrids were starting to pick
up steam but this was only in what most would consider the nerd community. So, Rivian didn’t
particularly have a bright outlook out the gate, but that didn’t stop a man named Robert Scaringe
or RJ from taking the risk anyway. At the time, RJ was only 26 years old and he had spent his whole
adult life in academia. RJ had a bachelors in mechanical engineering from Rensselaer Polytechnic
Institute and a PHD in mechanical engineering from MIT. But instead of continuing on in the regular
path and getting a job, after graduation, RJ returned to his home state of Florida and founded
Mainstream Motors. Some sources say that RJ came up with the capital himself, but at 26 with most
of his life spent in academia, it’s not likely that he would’ve been able to come up with
car company levels of startup capital. I’m sure RJ put in every penny he had,
but most of the money for initial development came from the Florida government. You see, RJ’s father
Robert Scaringe Sr. was a business owner himself who ran a company called Mainstream Engineering.
I think you can see where RJ got the name Mainstream Motors from. But anyway, his father
had managed to raise $61 million over 25 years all from the US government. So, his father was well
aware of how to raise money, and given that the US government was looking to support EV endeavors,
RJ was able to secure a small grant of 2 million dollars. Given that he was building a car from
scratch though, this really didn’t last that long. RJ ended up spending $900,000 on payroll,
$170,000 on contractors, and the rest was presumably on materials and manufacturing.
By 2011, RJ had burned through all the money, but at least he had something to show for it.
Mainstream Motors had created an electric sports car called the R1, but there was a
massive problem: the Tesla roadster. RJ’s sports car wasn’t bad by any means, but the Roadster was
already on the road and it didn’t make sense to compete against Tesla in an already niche market.
I’m not sure why RJ didn’t realize this when he started the project as Tesla was
delivering roadsters since 2008. But, he did eventually make this realization and he would
decide to scrap the entire idea. Now, I’m sure people are going to comment down below
that Rivian is considering bringing back this car today, so it wasn’t a waste. But in 2011,
the revival of this car was by no means a guarantee. So, RJ was back to ground zero.
CHANGING COURSE:
Determined to change the direction of the company, RJ looked at what EV competitors
weren’t targeting, and the obvious answer was SUVs and pick up trucks.
RJ also decided to change the name of the company to Rivian which was derived from Indian River.
He combined the first part of River and the last part of Indian. RJ had spent a lot of his
childhood in a rowboat on the Indian River in Florida, hence the name. Anyway, RJ had a new
target and new name, but he was still lacking the biggest part which was new funding. For RJ though,
this wasn’t that hard to secure. The source of Rivian’s 2012 funding effort isn’t clear, but it
was likely the government again or some venture capitalists who like to keep a low profile.
Over the next couple of years, Rivian hired a bunch of talent from legacy automakers like Ford,
GM, and Chrysler, and by the end of 2016, they had grown to 100 employees. This is still
relatively small, but given that basically all of these guys were engineers earning 6 figures,
it wasn’t cheap to run Rivian. Even if we just assume $100,000 per year per person,
we’re looking at $10 million annually on just payroll. And keep in mind,
Rivian still had no revenue coming in. Rivian was also investing heavily into manufacturing plants.
For example, in January of 2017, Rivian acquired a manufacturing plant from Mitsubishi for $16
million. Soon enough, Rivian revealed their pickup truck and their SUV originally called the A1T
and the A1C at the LA Auto Show in November of 2018. Unlike the Cybertruck reveal which
left the audience divided, the A1T and A1C were exactly what the audience wanted. From a distance,
they looked just like traditional vehicles, but up close, they had that futuristic electric touch,
and that’s what made all the difference. Step by step, Rivian was slowly getting ready to
launch their first vehicle, but the last step of bringing the product to market would take
way longer and cost way more than anybody expected. Fortunately for Rivian though,
investors with massive pockets would enter the scene after this reveal.
SMART MONEY:
Up until this point, Rivian had primarily raised money in the tens of millions,
but it didn’t take long for them to cross into the hundreds of millions. In May of 2018, Rivian
took on $200 million worth of debt from Standard Chartered bank which increased their total raised
funds to a whopping $450 million. Despite raising nearly half a billion dollars, the general public
still wasn’t that interested in EVs as the price was still way out of reach for most people. But
all of this would change with the launch of the Tesla model 3 in 2017. While the Tesla model 3 was
a promising idea from the start, many big players weren’t convinced that Tesla would actually
be able to execute on the idea. And this was an absolutely fair assessment given that Tesla would
go through production hell in 2018 trying to ramp up the model 3. Tesla played with the bankruptcy
line several times this year, and there were plenty of customer complaints regarding subpar
manufacturing. Despite all the uncertainty though, Tesla survived 2018, and that was the signal
that the time for EVs had finally come. Many big players didn’t want to take the gamble with Tesla,
but now that Tesla had gotten to the otherside, they were willing to take the risk with other EV
startups. And this led them straight to Rivian. In February of 2019, Amazon led a $700 million
investment round for Rivian. Overnight Rivian went from lifetime fundraising of $450 million
to raising $700 million in a single round and this was just the beginning. Just two months later,
Ford invested $500 million which they would later raise to $1.2 billion. Later that year,
Cox Automotive poured in another $350 million. And Amazon would put the nail in the coffin by
ordering 100,000 electric delivery vehicles from Rivian. By the end of 2019, Rivian had raised
a total of $2.85 billion, and now that smart money was in, it was time to open up the gates.
EV BUBBLE:
As we all know, starting at the end of 2019, Tesla stock soured. First it crossed a $100 billion,
then it overtook Volkswagen and Toyota, and now it’s literally a trillion dollar company. That’s
more than the rest of the top 10 auto companies combined. I’m not trying to get into whether
that’s justified or not, but something that’s crystal clear is the fact that Tesla took the rest
of the EV industry with them and that of course includes Rivian. In the meantime, Rivian was
struggling to start production and get deliveries going. Promised delivery dates and came and went,
and Rivian kept delaying the release time after time. But one thing we can be sure of was that
money was no longer the issue. They had already raised billions, and billions more were flowing
in due to Tesla hype. But Rivian was running out of time. Ford had revealed their F150 lightning
and Tesla was rapidly building their Austin gigafactory and making the cybertruck a reality.
It would’ve been a shame if Rivian had targeted the EV pick up truck and SUV market a decade ago
just to beat by Tesla and Ford. Fortunately for Rivian though, they were able to deliver
at the last second. At the end of August, Rivian filed for an $80 billion IPO and this confirmed
that Rivian was finally ready to start making deliveries. Ironically, despite targeting the
market years before Ford and Tesla, it looks like they only beat them to market by months. Anyway,
by the time Rivian IPOd, they had raised a total of $10.5 billion since 2019 alone.
To put that in perspective, that’s half the valuation of Nissan, twice the valuation of Mazda,
and four times the valuation of Aston Martin. And all of that was just to get their first
product to market. But looking back, that was just a drop in the bucket given that they
would reach a valuation of $150 billion which just leaves the question, what happens next?
FUTURE OF RIVIAN:
The truth is Rivian’s entire existence has been a bubble. First it was millions from the government,
then it was tens of millions from early investors, then it was hundreds of millions from smart money,
and now it's billions from the public markets. It seems like this must come to an end soon, but
the truth is, that’s not necessarily the case. All it takes is one announcement from Elon that Tesla
is going to do a stock split on December 9, and Tesla and EV industry will go to Mars. If Tesla
makes another run, I wouldn’t be surprised if Rivian ends up overtaking Toyota which is stupid
but reality nonetheless. When the bubble does eventually pop though, whether that's tomorrow or
after Rivian reaches a trillion dollar valuation, retail investors will likely lose substantial
amounts of money. Instead of trashing on Rivian and shorting the stock though, I think it's a much
better idea to see it in a positive light. The EV bubble has given companies that would otherwise
have little chance against the legacy automakers an opportunity. And at the end of the day,
the bubble is centered on a great cause which is reducing pollution and transitioning to
sustainable energy. The more companies that enter the scene and fight for market share,
the faster we’ll see a transition to EVs. So, maybe the bubble isn’t actually all that bad.
The crash, however, will be deadly for Rivian if they don’t make a mark before it’s too late.
So, I wish the best to Rivian despite their stupid valuation, but only time will tell if
they’re able to make it to the other side. Do you guys think Rivian will survive the eventual
crash and rival Tesla? Comment that down below. Also, drop a like if you also have a love hate
relationship with the EV bubble. And of course, consider joining our discord community to suggest
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