Nov 12, 2021 - Economy

For investors, Rivian isn't the next Tesla

Rivian's logo

Illustration: Annelise Capossela/Axios

Electric vehicle maker Rivian closed trading Thursday valued at nearly $105 billion, two days after completing the largest U.S. IPO since Alibaba in 2014. In short, investors are betting that Rivian can become the next Tesla, whose own market cap stands above $1 trillion. It's a bad bet.

Our thought bubble: This isn't a commentary on Rivian's products, management or ability to deliver on its long list of preorders. Nor is this stock advice; as I once upbraided Google's venture investors for not taking money off the table at IPO.

  • Instead, this is about ROI.

Tesla went public seven years after being founded, having raised less than $500 million in VC funding. It never hit unicorn status, and its current market cap is 658x its at-IPO value.

Rivian went public 12 years after being founded, having raised over $10 billion in VC funding. For Rivian to match Tesla's aftermarket performance, its market cap would need to hit around $69 trillion. I know inflation is all the rage these days, but... no.

  • Tesla, despite being younger than Rivian, had delivered more vehicles at the time of IPO. It also was operating in a much less mature market, whereas both companies now compete with legacy OEMs and a raft of EV startups.

Between the lines: Staying private longer has always resulted in a small number of private market investors getting to capture more potential upside; the antithesis of securities democratization. And that opportunity gap is being widened by the exploding sizes of growth equity rounds at nosebleed prices.

  • Rivian isn't a perfect example, given that some of its biggest VC backers were Amazon and Ford, although Tesla also had large public company investors in its pre-IPO cap table.

The bottom line: Rivian already has generated big returns, at least on paper, for those who bought at the IPO price. This includes pre-order customers who took advantage of a directed share program. It will not, however, generate Tesla-like returns, because it hit Wall Street too old and too rich.

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