Why There's a Lot to Like About Rivian's Upcoming IPO

Michigan-based electric-truck start-up Rivian has long been one of the most intriguing electric-vehicle start-ups, thanks to its savvy combination of cutting-edge innovation and Big Auto manufacturing know-how. Now, with the company preparing for an initial public offering, auto investors are getting excited. But with a rumored $80 billion valuation, is it overpriced -- or might it be a bargain? 

In this Motley Fool Live broadcast, recorded on Sept. 23, "Industry Focus" host Nick Sciple and Motley Fool senior auto specialist John Rosevear took a closer look at the company and its prospects as they tried to get an answer to that question.

A transcript is below the video.

Nick Sciple: We talked about Lucid's new electric vehicle coming to market and how it's shaking up the game. We have another new player that's doing the same thing. Rivian had their first truck of the R1T Electric pickup roll-off its line. That means it's going to beat Ford Motor Company (F 0.17%), General Motors (GM -0.05%), Tesla (TSLA -3.55%) to market with electric trucks. How important is this vehicle to the electric-vehicle market -- this is the first truck coming?

John Rosevear: It is, but we should say this isn't a truck like an F-150. This is, it's a little smaller, more like the size of a Ford Ranger or a Chevy Colorado, and it's definitely upscale. The entry point on this is over $70,000. It's a lifestyle truck. It's aimed at people who want to go camping, who want to go off-road, who want to go to the cabin in the woods, who want to throw a couple of kayaks on it, that kind of thing. It's got a lot of neat features. It's another company where I'm really impressed with the management team and the advisors they've brought in. The CEO, RJ Scaringe, is young, but he's made great decisions end to end. They're working with Ford, who have helped them figure out mass production. They're working with Amazon, which is an early customer that invested a lot. Both of those companies are investors. If the truck looks really good -- reviews have been strongly positive -- how many can they sell? I don't know. What is the market for $80,000 lifestyle-pickup truck, whether it's electric or not? I don't think it's huge. I do think there's a decent business here. It depends on where they go from here, I think, in terms of how big it could eventually get. But there's a lot to like about the company as it is.

Sciple: That backing, nothing to turn you off there. Those folks that know a lot about this business and their needs. There's another company exploring IPO. There's some rumors that it may come public here in the next few months. The numbers being thrown around is that they might may be targeting an eight billion dollar raise at an $80 billion valuation. Again, would be crazy when you talk about how Ford owns a stake in this business and this company is yet to deliver any vehicles at scale. Yet seeking $80 billion valuations, again, do you think same bucket as Lucid here as far as, it's a big market, but we will see how much of it they can capture.

Rosevear: Yeah, I also think this is, again, I said that CEO RJ Scaringe is a smart guy. I think he is looking at the very hot valuations for EV companies, generally, and it's like, let's get this while we can, maybe. [laughs] That's not any inside info, it's just I've been watching the company for a while, I've gotten to know them a bit. I think they'd be crazy not to raise $8 billion at an $80 billion valuation if the street is going to hand it to them. Sure, let's do it. Let's get some cash in the bank. We all in autos know that having a big cash reserve is great insurance against a recession. We learned the hard way during 2008, 2009 times. Nearly all of the big established automakers have big cash reserves. So they take this 8 billion and just put it in the bank or something, that recession-proofs the business and ensures that they can keep developing their new products and so forth, even if sales slipped during a downturn as they do in the auto business. So I think they're smart to go public here. Again, it's a lot of money for what looks right now as a niche company. It could be successful, it could be profitable, but from what we've seen from them so far, it's more of a niche player. That said, those can be good businesses, and I'm not sure it's an $80 billion business -- if you're not looking through Tesla-colored glasses.

Sciple: Yeah, we'll see what happens. I would certainly in a business that's trying to scale up production in a capital-intensive industry, 8 billion dollars is certainly very helpful. Part of the Tesla story is being able to have a really strong valuation to get access to capital, to be able to reach scale, and that's part of why Tesla succeeded where a lot of other automakers haven't. To the extent this valuation is high, that says something about maybe the potential returns here, but also says something about their ability to actually get there with production. Because they have a much lower cost of capital than other folks may have had historically, who tried to enter this space. We'll see what happens.

Rosevear: Of course, what we have to remember with both Lucid and Rivian is how many buyers are there, ultimately. Three years from now, when Ford and GM are shipping commercial-ready electric pickups and all that, how many buyers are there, and that, to some extent, will be dependent on their product strategy over the next year or two for both of them.