Author: Don Obrien

Sparkling Rivian IPO Adds to Bubble Talk in EV Space: Tech Watch

(Bloomberg) — Rivian Automotive Inc. made a roaring stock-market debut Wednesday even as investors grow increasingly concerned about extreme rallies in electric-vehicle stocks, with sector leader Tesla Inc. back to climbing a day after sharp pullback.

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Rivian, a maker of electric pickup trucks, raised $11.9 billion in the biggest initial public offering of the year. The stock opened 37% above its IPO price, taking its market capitalization above $90 billion. Rivian’s eye-popping market value is higher than EV producers Lucid Group Inc. and Nio Inc.

Those companies have been at the heart of some of the biggest stock-market moves recently as investors bet that the shift away from internal combustion engines will produce huge revenues. For now, though, the companies, Tesla aside, are unprofitable. Rivian lost almost $1 billion in the first half and Nikola Corp., Lordstown Motors Corp. and Lucid don’t even have sales yet.

“Everyone wants to invest in a good business in a space that is going to grow,” said Michael O’Rourke, chief market strategist at Jonestrading Institutional Services. “But it is incredibly dangerous to overpay, especially in a bubble for that growth.”

A slew of deals and policy changes have extended the bubble-like rally beyond carmaking stocks.

Avis Budget Group Inc. and Hertz Global Holdings Inc. surged in the past month after the car-rental companies embraced the adoption of EVs. Laser-based radar maker Luminar Technologies Inc. rallied as much as 37% Tuesday on a deal with Nvidia Corp. for self-driving hardware. And EV charging stocks such as Volta Inc. jumped after Congress passed the biggest U.S. infrastructure package in decades.

The thing is, while these popular stocks often skyrocket, they can just as easily come tumbling down fast. Tesla, for example, plunged 16% in the previous two sessions after a string of negative news — including a Twitter poll by Chief Executive Elon Musk about a possible stock sale and a report of a tweet from investor Michael Burry that said Musk may want to sell some shares to cover his personal debts. The move wiped off about $200 billion in market value and briefly pushed its market value below $1 trillion.

The EV frenzy stretched even to underwear retailers. Naked Brand Group Ltd. soared as much as 32% Tuesday, before paring most of those gains, after the company said it will acquire commercial EV technology company Cenntro Automotive in a stock-for-stock deal.

The valuations across the industry imply the companies will enjoy massive growth. EV leader Tesla trades at about 14.8 times 2022 sales, much higher than the S&P 500’s 2.85 times. Meanwhile, Nikola trades at a whopping 38.2 times estimated 2022 sales, while Workhorse is valued at 17.1 times estimated revenue.

The air has already come out of some of the stocks, with Nikola and Lordstown both collapsing about 80% from their 2020 peaks. Lordstown has been under investigations by regulators after an internal probe concluded that prior management made inaccurate statements about pre-orders for its planned Endurance pickup, while Nikola’s founder has been hit with criminal fraud charges alleging he defrauded investors. He’s pleaded not guilty.

Still, not everyone’s skeptical. “I wouldn’t count out the space,” Jay Jacobs, head of research and strategy at Global X Management Co., said in an interview. “When people have tried to bet against that, they’ve for the most part been wrong.”

Indeed, Alibaba-backed Xpeng Inc. soared 40% on its debut last year and is now trading almost three times its IPO price. But that has of course with some extreme swings — perhaps the nature of the crowded EV space, as very few companies are even producing cars yet. Rivian is one of them, delivering its first vehicles, mostly to its own employees, a couple of months ago.

Tech Chart of the Day

Top Tech Stories:

  • Tencent Holdings Ltd.’s revenue grew a slower-than-expected 13%, after China’s sweeping tech crackdown took a toll on businesses like gaming and advertising.

  • Google lost its appeal of a 2.4 billion-euro antitrust fine for allegedly thwarting smaller shopping search services, in the first of a trilogy of European Union court fights over cases that set the course for the EU’s campaign to rein in Silicon Valley.

  • DoorDash Inc. soared after the company said it will buy Finnish food-delivery company Wolt Enterprises for about 7 billion euros in stock. The news came as DoorDash posted a 45% increase in revenue for the third quarter, boosted by demand for meal delivery that has outlasted the depths of the pandemic.

  • The biggest cryptocurrency exchange in the U.S., Coinbase, reported third-quarter results that missed Wall Street’s expectations. Its monthly transacting users on its platform reached 7.4 million, down from 8.8 million in the second quarter. The stock tumbled.

  • PubMatic jumped after the online advertising-technology company reported a fourth-quarter sales forecast that topped analyst expectations.

(Adds Rivian trading debut details; updates chart and valuation data)

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Oliver Bolt

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