Rivian’s Stellar IPO Might’ve Just Set The Bar Too High For The EV Market To Clear

Rivian’s Stellar IPO Might’ve Just Set The Bar Too High For The EV Market To Clear
Andrew Rummer

over 2 years ago4 mins

  • Investors are throwing money at electric vehicle stocks at the moment, as demonstrated by Rivian’s booming IPO on Wednesday.

  • But when you look at the forecast size of the global EV market, it becomes hard to make a case for the valuations investors seem willing to pay.

  • A quick calculation shows that the current crop of US-based EV makers will have to take a third of the global market between them to justify their current share prices.

Investors are throwing money at electric vehicle stocks at the moment, as demonstrated by Rivian’s booming IPO on Wednesday.

But when you look at the forecast size of the global EV market, it becomes hard to make a case for the valuations investors seem willing to pay.

A quick calculation shows that the current crop of US-based EV makers will have to take a third of the global market between them to justify their current share prices.

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Electric vehicle (EV) maker Rivian (ticker: RIVN) joined the stock market on Wednesday, with its share price surging 29% on day one and its valuation hitting $86 billion, matching General Motors and eclipsing Ford. It was the biggest US market debut of the year and the sixth-largest of all time, adding a fresh supply of EV-focused shares to a market seemingly brimming with demand. But however you slice the numbers, it doesn’t seem credible that the world’s eco-conscious drivers could possibly buy enough EVs to justify the sums investors are willing to pay for their manufacturers’ stocks.

But surely EVs are the future?

At this point, almost no one doubts that. EVs are a technology that’s rapidly coming of age, with adoption assisted by measures like the UK government’s ban on new combustion-engined cars from 2030. But when it comes to picking investments, the potential size of the market matters hugely, no matter how fast it’s growing. And it’s possible that the EV market will never actually be that big.

My colleague Stéphane produced a great analysis of Rivian’s potential valuation two weeks ago, in the run up to the IPO, and I don’t want to repeat those calculations here. Instead let’s look at the potential worth of the entire electric vehicle market given how fast the world is forecast to buy green vehicles over the coming decade. 

The International Energy Agency predicts that consumers globally will be buying 25 million EVs a year by 2030. And by that time, Bloomberg New Energy Finance reckons that the average selling price for a medium-sized EV will have dropped to about $27,000 as batteries get progressively cheaper.

EV prices are declining

Multiply those two numbers together and you get a rough market size of $675 billion by 2030. Just to reiterate: that’s for all the electric vehicles – excluding bikes – sold globally.

But the current market value of US-based makers of electric vehicles stands at:

  • Tesla: $1.08 trillion
  • Lucid: $66 billion
  • Fisker: $5.6 billion
  • Canoo: $1.9 billion
  • Lordstown Motors: $980 million
  • Workhorse: $930 million

Add in Wednesday’s addition of Rivian at $86 billion, and you get a total market value for US-based EV firms of a little over $1.2 trillion.

Now let’s assume that – as the market matures – the average valuation of a US-listed EV stock will tend towards the current valuation of the tech-focused Nasdaq 100 Index, currently 5.5x sales. That’s a generous assumption for two reasons: firstly, 5.5x sales is a record high and roughly double the Nasdaq’s average valuation over the past two decades, and, secondly, US car company stocks tend to trade at more like 0.5x sales.

But let’s assume lofty tech-like valuations rather than stingy automaker valuations, and stick with our 5.5x figure: that means global EV sales of $675 billion should be worth about $3.7 trillion to investors. (I’m ignoring discount rates for this ballpark calculation).

To justify their current valuations, therefore, these seven US-listed companies would have to take a third of the entire global market for EVs by 2030. That would leave the current crop of incumbent automakers – Ford, General Motors, Toyota, etc – and the non-American EV specialists – the likes of XPeng, NIO, and Leapmotor – to fight over the remaining two-thirds between them. Not to mention any other new EV startups yet to join the fray. 

It’s possible that Tesla, Rivian, and the gang could snap up such a large share of sales, but it doesn’t strike me as probable.

Focusing just on Rivian, a valuation of $86 billion implies it’ll need to sell more than 3.4 million vehicles in 2030, according to research firm New Constructs. To be clear: that’s exactly 3.4 million more than it’s sold so far (... Rivian literally hasn’t sold a single truck). It’s also four times the number that Tesla – which currently controls 80% of the US market – managed to deliver over the past 12 months.

So while I assume that tens of millions of electric vehicles will be rolling off production lines by the end of the decade, I still find it very hard to justify the current valuations of US-listed EV stocks. Buyers beware. 

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