Is This the Most significant Winner from Rivian Automotive’s Huge IPO?

2020 was the yr of the electrical car stock! Inspired by Tesla‘s sturdy overall performance, last calendar year noticed a deluge of EV automakers debut on the general public marketplaces by means of IPO or by means of a reverse merger with a unique objective acquisition company, or SPAC.

Continue to, there was one particular higher-profile holdout: Rivian Automotive. Founder and CEO Robert “RJ” Scaringe downplayed Rivian’s IPO intentions, noting as late as November the firm was targeted on creation in response to an IPO-linked problem. Which is why traders ended up pleasantly surprised before this thirty day period when Bloomberg documented the company was prepping to go general public with a possible September 2021 listing.

Having said that, acquiring Rivian stock may well not be the ideal way to consider advantage of Rivian Automotive’s pending IPO. Traders need to think about shopping for shares of Rivian trader Ford (NYSE: F) as a substitute.

Image resource: Getty Visuals

Ford’s possession stake in Rivian should boost shares

Buying and selling at a rate-to-e book ratio of 1.5 periods, Ford is certainly regarded as a value stock and house owners are shelling out near awareness to its assets. Due to the fact of this, its financial investment in Rivian could lead to a 1-time repricing of Ford’s stock.

Ford introduced a $500 million financial investment round in Rivian in April 2019, alongside with an agreement to work alongside one another to acquire jointly build a Ford-branded EV using Rivian’s drivetrain technological know-how. Ford’s ownership stake of Rivian stays undisclosed, but that has not stopped buyers from bidding up Ford shares on constructive news from Rivian inventory.

Last calendar year, when Rivian raised dollars at a $27.6 billion valuation, Ford observed its shares surge virtually 25% in three times. With a rumored IPO valuation of $50 billion, it can be very likely Ford will working experience one more rally when Rivian hits the public marketplaces.

Valuation convergence should really profit Ford

News of Rivian’s IPO was optimistic for Ford for a couple reasons. First was the actuality Rivian is probable to go public at a $50 billion valuation, which is now greater than Ford’s current market capitalization, despite possessing negligible profits although Ford sells millions of autos each and every year. 

The car business is now bifurcated from a valuation standpoint: pure-participate in EV makers are receiving valuation multiples far more akin to technologies providers when conventional automakers like Ford and Normal Motors are staying valued particularly fewer favorably. 

The most likely interpretation of the valuation divergence is traders have minimal faith in Ford and GM’s skill to contend and gain share in the EV sector. That’s irrational and you can expect some convergence — whether that is Ford remaining rewarded with higher multiples, EVs encountering valuation compression, or a mix of both of those. 

I be expecting the latter will be the most-possible final result and competitor Typical Motors has experienced this to a certain diploma. CEO Mary Barra has witnessed shares almost double in the very last six months as the corporation has started to market their EV upcoming and traders are acquiring in. Far more consciousness of Ford’s ideas and long run successes in EVs, significantly its partnership with Rivian, must lead to inventory gains. 

Irrespective, Rivian Automotive’s IPO will likely be a won’t be able to pass up occasion for the entire automotive industry. To discover much more about Rivian Automotive inventory before the IPO, examine out Millennial Money’s deep dive.

This post signifies the view of the author, who may possibly disagree with the “official” suggestion position of a Motley Fool high quality advisory services. We’re motley! Questioning an investing thesis — even 1 of our have — can help us all assume critically about investing and make selections that aid us grow to be smarter, happier, and richer.

Amelia J. Bell

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