I don’t usually say “I told you so”, primarily because I’m rarely right, but if you read my article on November 9th regarding Rivian’s upcoming IPO then you would see why I’m feeling a bit pompous. I said, and I quote, “I fully expect people to invest way over what the math suggests is reasonable.”
Cue Jeremy Clarkson smug face.
At the beginning of trading on Wednesday morning, Marketwatch reported that Rivian had priced their shares at $78 apiece and raised the total number of shares from 135 million to 153 million, which should have diluted the price. However, as of 3pm EST on Wednesday, November 10th, the share price seems to have settled around the $100 mark.
With this massive jump in share price, Rivian is now valued at over $100 billion, which is more than every other automaker except for Tesla, Toyota, Volkswagen, and China’s BYD.
Mind Over Matter
While I am inclined to view this as just another example of how hot the stock market is and how we as humans perceive value, GM CEO Mary Barra seems to think Rivian’s valuation is justified. She stated at a New York Times event, “What it highlights to me is the huge opportunity. General Motors is so undervalued.” Considering that the only compelling and quality vehicles the legacy automaker creates is the Corvette and the Bolt, I’m inclined to disagree.
However, Rivian’s performance does bring into question just how accurate the stock market is at appropriately determining value. Obviously, Rivian’s balance sheet doesn’t currently reflect a $100 billion valuation. According to The Verge, it’s going to take Rivian until the end of 2023 to fulfill the 55,000 preorders for its $70,000 R1T pickup truck. If they sold every one of those at 100% profit margins, that is still only $3.8 billion dollars. Rivian has made nearly $12 billion from its stock sales alone.
Where is this valuation coming from then? The same place all value emanates from: the perception of human beings. We perceive, then we judge, then we determine value. For whatever reason, the American investing public has determined that Rivian, either now or in the future, is worth $100 billion dollars. And that same investing public has determined that GM is only worth $85 billion.
Does it make much sense? The EV market is hotter than it was ten years ago and Ford is the only other company putting out a compelling electric truck. Maybe Rivian has a shot to be extremely valuable, but I think the only way this valuation can be justified is on potential future earnings. Even then, it is a stretch to make these numbers work.
But, like I said, Rivian is not selling cars, they are selling a compelling, clean, and exciting adventure that consumers can be a part of. That is why people are investing above and beyond the numbers, because we all long to be a part of a great story.