Rivian is one of the most promising electric car startups around, thanks to an excellent first product, big-name investors, and a top-flight staff sourced from some of the biggest names in tech and automotive. But while a great truck and billions from Jeff Bezos are impressive, one thing tells me more about Rivian’s confidence in itself than anything else.
Instead of merging with a Special Purpose Acquisition Company (SPAC) to go public — an investment vehicle that allows companies to begin offerings shares to the public while skipping a whole bunch of tedious regulatory paperwork (and the need to disclose lots of information to potential investors) — Rivian is going to do a traditional initial public offering (IPO)
Rivian: SPAC vs. IPO
A SPAC is a public company that has no product, revenue, or profits. Instead, it’s a corporate shell that holds money with the plan to “acquire” a private company. In effect, merging with the SPAC allows a privately held company to circumvent the whole IPO process and just go straight to a stock market listing while raising some funds at the same time.
There are a number of benefits to a SPAC merger, including a faster timeline (months versus more than a year for an IPO), lower costs because there are fewer bank and underwriter fees, and, crucially (for some companies) less regulatory oversight. Instead of talking about past performance, which might not be great at an EV-maker that’s barely launched its first product, companies merging with a SPAC can be more forward-looking with their projections.
An IPO, on the other hand, is a bit more old-school. Those who remember the wild tech bubble days around the turn of the millennium may be very familiar with the concept, but it requires a long S-1 filing (here’s Rivian’s!) detailing, among other things:
- Corporate strategy
- Risk factors (there are a lot of these)
- What the company will do with its IPO funds
- Whether it plans to pay dividends
- How the company is currently capitalized: who owns what
- Lots of financial data from the last few years
- Who runs the company and how much they’re paid
- How much debt a company has
- And much more
In essence, it’s a very deep dive into the company and why you might want to invest in it.
The problem with EV SPACS
Though some traditional companies have chosen the SPAC route including Volvo’s corporate sibling Polestar (which announced a SPAC deal in September 2021), a lot of EV startups have gone the SPAC route... some with less than ideal results.
Nikola went public via a SPAC in early 2020 and was valued at more than $3.3 billion. That resulted in criminal charges against the company’s founder and a warning from the SEC about companies misleading investors in SPAC deals. It’s one of the main reasons why SPACs are getting increased scrutiny from regulators.
Lordstown Motors merged with a SPAC in March 2021 and is down significantly from its first trades. Oh, and it’s also under investigation by the DOJ regarding its reports of vehicle preorders ahead of its deal. The New York Times has an interesting behind-the-scenes of that particular story.
I’ll leave the larger SPAC debate to other journalists, and just note that these days, an IPO seems to be the sign of a mature, stable company.
Volvo, the longtime Swedish automaker now owned by Chinese auto conglomerate Geely, plans to IPO with a projected market capitalization of around $20 billion. Showing the incestuous nature of the business, the newly public Volvo Cars will hold a 50 percent stake in Polestar (which itself is about to SPAC as noted above) along with corporate parent Geely. Volvo plans to be a fully electric car company by 2030.
What Rivian’s IPO reveals
Rivian’s S-1 filing showed that Amazon and Ford both own more than 5 percent of the company and that Rivian will see the majority of its initial sales from a pre-existing order for 100,000 electric delivery vans from Amazon. It also revealed that the company lost $1.02 billion in 2020 and lost $994 million in the first six months of 2021 as it geared up for the launch of the new R1T electric pickup and R1S electric SUV.
Rivian communications chief Andy Bowman declined to comment when contacted by Inverse, noting that the company was restricted by SEC rules ahead of an initial public offering. No official IPO date has been set for Rivian, but rumors say it could happen as soon as mid-November 2021.