If you build it

By the end of October Rivian had built 180 pickup trucks and handed 156 of them to customers.^{1Rivian (SEC filing)Amendment No. 3 to Form S-1, Rivian Automotive, Inc.5 Nov 2021} On 9 November it priced shares at $78 each, above the range of $72 to $74 it had published only days earlier.^{1Rivian (SEC filing)Amendment No. 3 to Form S-1, Rivian Automotive, Inc.5 Nov 2021,2Rivian (SEC filing)Form S-1MEF, Rivian Automotive, Inc.9 Nov 2021} The firm that made those trucks lost between $1.2bn and $1.3bn in the third quarter, on revenue of at most $1m.^{1Rivian (SEC filing)Amendment No. 3 to Form S-1, Rivian Automotive, Inc.5 Nov 2021} Ford made $1.8bn in the same quarter, on $35.7bn of sales.^{3Ford (SEC filing)Ford Achieves Strong Q3 Results, Raises Full-Year 2021 Guidance27 Oct 2021} General Motors made $2.4bn on $26.8bn.^{4General Motors (SEC filing)2021 Q3 Earnings Release27 Oct 2021}

Our calculation: $78 a share, multiplied by the 852.9m shares the company said would be outstanding after its offering, comes to about $66.5bn.^{1Rivian (SEC filing)Amendment No. 3 to Form S-1, Rivian Automotive, Inc.5 Nov 2021,2Rivian (SEC filing)Form S-1MEF, Rivian Automotive, Inc.9 Nov 2021} That is a figure we derived, not one Rivian published, and it is conservative: the sale was later enlarged by 20.7m shares.^{2Rivian (SEC filing)Form S-1MEF, Rivian Automotive, Inc.9 Nov 2021} Trading begins on the Nasdaq today, and the crowd that has been queuing for it seems unlikely to value the company at less.

Profit and loss. Third quarter 2021, net income, $bn (Rivian: midpoint of estimated loss)

	Net income
Ford	1.8
GM	2.4
Rivian	-1.24

Source: Rivian S-1/A; Ford and GM earnings releases¹³⁴

We think this is a mistake, though not a swindle. Rivian is a real company with a real truck, a real plant in Normal, Illinois, and a real customer in Amazon, which has ordered an initial 100,000 electric vans.^{1Rivian (SEC filing)Amendment No. 3 to Form S-1, Rivian Automotive, Inc.5 Nov 2021} The prospectus is candid. It calls Rivian “a company with an extremely limited operating history” and “a growth stage company with a history of losses”.^{1Rivian (SEC filing)Amendment No. 3 to Form S-1, Rivian Automotive, Inc.5 Nov 2021} The fault lies with the price, which treats the second sentence as a rounding error.

The bull case deserves its best statement. Cars are a business of scale, and scale arrives late. Tesla lost money for years and made fools of the sceptics. Rivian has raised cash in advance, holding an estimated $5.1bn on 30 September before the offering,^{1Rivian (SEC filing)Amendment No. 3 to Form S-1, Rivian Automotive, Inc.5 Nov 2021} and its Normal factory is designed to turn out up to 150,000 vehicles a year at full rate.^{1Rivian (SEC filing)Amendment No. 3 to Form S-1, Rivian Automotive, Inc.5 Nov 2021} Amazon, which indicated interest in buying $200m of shares in the offering, is no fool.^{1Rivian (SEC filing)Amendment No. 3 to Form S-1, Rivian Automotive, Inc.5 Nov 2021} If the vans and pickups come at the promised pace, today’s price may look cheap.

Notice how many “ifs” that paragraph needed. A capacity of 150,000 a year is a ceiling, and the filing itself describes it as reachable only on multiple shifts.^{1Rivian (SEC filing)Amendment No. 3 to Form S-1, Rivian Automotive, Inc.5 Nov 2021} The 156 trucks delivered so far are a rehearsal. Amazon’s order, in the company’s own telling, is an initial volume that can be modified. A price that rests on all of these arriving on time is not a valuation of what Rivian is. It is a valuation of what Rivian says it will be, and the two are a long way apart. Rivian lost about $1bn in 2020 and $994m in the first half of 2021 alone.^{1Rivian (SEC filing)Amendment No. 3 to Form S-1, Rivian Automotive, Inc.5 Nov 2021}

The market has a name for this and a defence of it: capital is cheap, investors are paying for the option on a decade of electric vehicles, and nobody can price an option precisely. That is fair, as far as it goes. But an option is priced against the odds of success, and the odds in car-making are not kind. The industry has a long record of firms that were first to a clever design and last to a profit. Ford, for its part, is spending more than $30bn on electric vehicles between 2020 and 2025 and plans an annual volume of 80,000 for its electric F-150.^{3Ford (SEC filing)Ford Achieves Strong Q3 Results, Raises Full-Year 2021 Guidance27 Oct 2021} That is Rivian’s competition, with dealers, suppliers and a balance sheet built from selling trucks to people who pay on time.

What would we have investors do? Three things. First, price production, not prospects: pay for vehicles delivered and margins earned, and treat the rest as a free call that deserves a small premium, not a large one. Second, read the loss line before the revenue line: a quarter that costs $1.2bn to earn $1m is a research programme with a car park. Third, ask the underwriters to publish the production schedule they used in their own models, so that the story can be checked against the factory floor each quarter.

Regulators should at least insist on candour about the last point. Small investors can buy this listing too, and they deserve a prospectus that ties the headline to the assembly line as tightly as the firm’s own engineers must tie a chassis to a motor.

Field of Dreams promised that if you build it, they will come. At Normal, Illinois, the order is currently reversed.