Capitalizing Climate | S-1 teardown: Rivian

G2 Venture Partners
G2 Insights
Published in
14 min readOct 5, 2021

We’re excited to kick off a new series at G2 called “Capitalizing Climate” with Rivian, which filed its S-1 on October 1, 2021. In this series, we’ll deconstruct climate-tech companies as they make their debut in public markets, framing their businesses and markets in the context of our experience investing in climate-tech over the past decade.

Ten highlights from Rivian’s S-1:

(1) Rivian is all in on vertical integration: The S-1 highlights that Rivian’s strategy entails high levels of vertical integration, only rivaled by companies like Tesla and Apple. From the development of vehicle technology (e.g., custom battery pack/module) to manufacturing (e.g., insourced stamping) to operations (e.g., charging infrastructure, insurance), you can find vertical integration in almost every facet of their business. While this strategy carries additional execution risk and capital needs, Rivian is betting that vertical integration will lead to (i) a lower cost structure, (ii) faster pace of innovation, (iii) reduced supply chain risk, and (iv) exceptional customer experience.

(2) Rivian is throwing the conventional automotive business model out the window. Like Tesla, Rivian is shifting the industry away from the model of “# of cars sold per year x average selling price.” Instead, Rivian is leveraging “Rivian Cloud” and its proprietary data and analytics platform to offer a host of value-added services including telematics-based insurance, data-driven resale, FleetOS for commercial customers, etc. We were interested to learn that >50% of Rivian’s estimated market is driven by services revenue over the lifetime of the customer. In effect, Rivian has created the foundation for a SaaS-like business model which, if successful, could completely transform how investors look at the automotive industry.

(3) Rivian is focused on a highly attractive vehicle segment. Trucks and SUVs comprise >70% of new vehicle sales in the U.S. and represent the most profitable segment for incumbent automakers. According to Morgan Stanley Research, the Ford F-150 (America’s best-selling car) accounts for the majority of Ford’s profit. Trucks and SUVs are also less fuel-efficient than sedans, meaning that Rivian stands to have a significant impact on climate change by focusing its electrification efforts on these segments.

(4) Commercial agreements give Rivian a running start — Rivian has contracted an estimated $2.5B* in revenues across fleet management and charging for their 100,000 vehicle order from Amazon. The scale of this contracted value stream gives Rivian a leg up in developing a robust charging network over other emerging OEMs. The Supercharger network has given Tesla a long-term moat that is difficult for emerging consumer-focused OEMs to replicate, and Amazon’s contract across both vehicles and services gives Rivian a truly unique running start on the infrastructure side.

(5) The consumer business still matters — a lot: Rivian’s 100,000 Electric Delivery Van (EDV) order with Amazon gives it line of sight to $3–5B of commercial revenue by 2025. Amazon is mentioned 81 times in the S-1, underscoring the importance of them as a customer (and investor) to Rivian. However, exclusivity clauses with Amazon prevent them from working with other commercial customers, and so at this valuation their story is highly predicated on them building a loyal consumer base for their pickup and SUV products.

(6) Rivian isn’t taking any chances — they’ve built a war chest to go the distance. Since its inception, Rivian has raised $11.2B, and they’ll likely raise another $8B as part of the IPO. After it completes its IPO, Rivian will have raised more capital than the following new EV OEM entrants combined: Lucid, Arrival, Lordstown, Nikola, Fisker, Faraday Future, and Canoo. This isn’t just out of an abundance of caution: Tesla had to spend nearly $10B to reach positive free cash flow (which took 16 years), and Rivian recognizes that it may have to undergo a similar path. We would argue that expectations for Rivian are much higher as compared to Tesla post its 2010 IPO — Rivian is in a position where it needs to ship multiple products simultaneously whereas Tesla developed products mostly in a serialized order, learned, and then raised more capital.

(7) Expect the talent war to heat up: Rivian has become a magnet for talent with an estimated 10% of their 6,000+ employee base coming from Tesla and another 4% from Apple. Rivian’s talent pool extends beyond automotive engineering and includes expertise from data science, semiconductor design, and software engineering fields. It will be exciting to watch the flow of talent to and from firms like Rivian as the EV wars escalate over the next 5–10 years. In particular, Rivian’s ability to recruit and retain top software talent will be critical as they attempt a paradigm shift in business model.

(8) Battery tech is far from becoming a commodity. Given range, performance, safety, and price implications, getting the battery system right is of paramount importance to Rivian. As a result, the company has developed a lot of core IP relating to the battery system and has opted to develop in-house capabilities across the entire value chain including battery module and pack, battery management system (BMS), and even cell chemistry and characterization. Unlike traditional internal gas-powered vehicle components (e.g., engines, turbochargers, transmissions, etc.), we think battery technology is far from becoming commoditized and will remain a source of technological differentiation amongst OEMs and suppliers for many years to come.

(9) Rivian’s commitment to climate runs deep. As part of the upcoming IPO, Rivian has created a philanthropic organization called “Forever” which will focus on high-impact climate initiatives and preserving bio-diverse land. Forever will be funded with shares of Rivian’s Class A common stock equal to 1% of Rivian’s outstanding equity immediately preceding the completion of this offering. In essence, the “natural world” will become a shareholder in Rivian.

(10) RJ Scaringe is evangelizing a new outlook for the planet — one of hope: the mission statement of the company, “Keep the world adventurous forever,” is inherently hopeful and optimistic, and a contrast to Elon Musk’s messaging of “transition to EVs — or perish.” While Musk’s celebrity has been built on a point of view that we will need to colonize space in order to survive as a species, Scaringe has taken a more earth-centric approach in both the company’s messaging and philanthropy.

  • Estimate: 100,000 vehicles * ($11.3k/vehicle for fleet management and $14.6/vehicle for charging-as-a-service)

Analysis

Background

On Friday Rivian’s S-1 became publicly available, marking an exciting milestone for the electric automaker.

When Tesla went public on the NASDAQ on June 29, 2010, it was the first automaker to go public in the US since Ford in 1956. Tesla’s success catalyzed a decade of innovation in mobility technologies, and over the past 12 months in particular, over 15 electric vehicle companies have listed in public markets. Like many of its peers, Rivian has only just begun producing vehicles, and had not recognized revenue in the time periods reported in their S-1. However, their substantial program with Amazon (also an investor), strong talent pool (10% of Rivian’s current employees previously worked at Tesla), and blue-chip investor base make them one to watch.

Rivian was founded in 2009 and was initially focused on an electric sports car comparable to the Tesla Roadster. RJ Scaringe, its relatively low-profile leader, had raised $450M from Abdul Latif Jameel, Sumitomo Corp, and Standard Chartered bank to design the R1T pickup and the R1S SUV. The company’s inflection point came in 2019, when Amazon announced a 100,000 commercial vehicle order from the company, concurrent with an investment.

Rivian has raised $11.2B to date across 14 rounds of private financing — largely with a mix of strategic investors, e.g. Amazon and Ford each own ~5% of the company, and crossover investors, e.g. Coatue, Dragoneer, D1, Fidelity, BlackRock, T.Rowe Price. The company is rumored to be raising as much as $8B at an $80B post-money valuation in its IPO, which would make it the fourth-largest IPO of the decade, behind Alibaba, Facebook, and Uber.

Technology

Rivian’s technology platform appears to be more advanced and vertically integrated than what we’re accustomed to seeing in the traditional automotive ecosystem. The majority of Rivian’s core vehicle technology was designed in-house including vehicle electronic control units (ECUs), battery pack, drive units, chassis, infotainment system, and active safety systems. This approach contrasts with incumbent automakers which generally leave component design to Tier-1 suppliers. Additionally, Rivian has developed a robust data aggregation and analytics platform called Rivian Cloud to power its operations and serve its customers end-to-end. Rivian views the seamless integration of hardware, software, and data as its competitive advantage over incumbents. The company strongly believes that its approach has allowed them to develop an integrated vehicle architecture with low latency, high reliability, algorithmic intelligence, and the capacity for continuous improvement.

Rivian’s Technology Stack

Battery Technology: Given that the battery system has significant implications for vehicle range, performance, and price, Rivian has opted to develop in-house capabilities across the entire battery value chain including battery module and pack, battery management system (BMS), and even cell chemistry and characterization. They’re even going so far as to expand its capabilities related to proprietary cell development and in-house cell manufacturing. With respect to the underlying cell strategy and pack design, Rivian has opted to use cylindrical lithium-ion cells in its battery modules (similar design as Tesla) bucking the trend of large-format pouch or prismatic cells favored by several of the incumbents including GM. Ultimately, what matters to customers is range, and at launch, Rivian’s battery will produce 314/316 miles of range for the R1T/R1S (400+ mi targeted in 2022), which should be competitive with most offerings in the near-to-mid term. Additionally, Rivian has developed a voltage switching mechanism to allow for 800V charging, which means faster charging times versus rivals including Tesla (400V system).

Custom Electronic Control Units (ECUs): Rivian opted to custom-design a range of electronic control units across battery management, autonomy, digital experience, vehicle dynamics, telematics, etc. interconnected through an in-vehicle ethernet-based communication network. All of Rivian’s core vehicle tech is underpinned by a proprietary “operating system” that enables robust interaction between all hardware systems, ECUs, controls, and other software stacks. The operating system is powered by algorithms which enable high performance across vehicle dynamics, safety, reliability, and battery. Overall, Rivian is taking a more centralized and software-defined approach to compute architecture, which should allow for greater software functionality, more code reuse, and easier remote management (AutoVision News). This is in contrast with the incumbent solution which so far has been to increase the number of ECUs (thereby increasing architectural complexity) as vehicles become more sophisticated.

Active Safety Systems: All Rivian vehicles are equipped with “Driver+”, a set of Level 2 active safety features including automatic emergency braking (AEB), lane keep assist, highway assist, and parking assist. It’s unclear how sophisticated Rivian’s active safety system will be compared to others, most notably Tesla Autopilot, and it’s also unclear whether Rivian is working with a partner on its L2 capabilities. What is clear is that Rivian has Tesla-scale ambitions when it comes to autonomy. In parallel, Rivian has been developing a proprietary autonomous driving platform to eventually support Level 3 autonomy. R1 vehicles have a dense sensor suite of 11 cameras, 12 ultrasonic sensors, and 5 radars and EDVs have 12 cameras, 16 ultrasonic sensors, and 5 radars. Note: Tesla’s vehicles have 8 cameras and 12 ultrasonic sensors (no radar). This is a clear sign that Rivian is attempting to “package protect” for L3 autonomy in the near future. Absent from the S-1 was any mention of the future usage of LiDAR, which we believe will be necessary in order for Rivian and others to achieve L3+ autonomy. (Note: LiDAR is the optimal sensor for measuring distance and detecting obstacles and is needed for autonomous vehicles to achieve higher levels of safety). We wouldn’t be surprised if LiDAR appears in future iterations of the R1T/R1S, especially as the technology becomes more accessible from a cost standpoint.

Rivian Cloud: Rivian’s integrated software and data architecture is called “Rivian Cloud”. A single data lake aggregates data across all products and services, allowing Rivian to run analytics at scale to unlock insights into usage patterns, day-to-day performance, and challenging edge cases. Similar to Tesla, analyzing this data will help Rivian refine vehicle hardware and software designs, enable predictive diagnostics, improve battery health, proactively service vehicles, and unlock a host of services including telematics-based insurance, data-driven resale, etc.. Rivian vehicles will also have integrated over-the-air (OTA) updates to drive continuous improvement across software and firmware — functionality that most OEMs have been slow to roll out.

Business model and financials

Business model

  • Rivian is a vertically integrated vehicle manufacturer, serving (1) consumer segments with a pickup truck (comparable to the F-150, America’s best-selling car for 39 years running) and an SUV, and (2) commercial segments with a delivery van
  • Similar to Tesla, Rivian’s success in the consumer segment is highly dependent on them building a strong base of engaged and vocal customers. The company’s mission is to “Keep The World Adventurous Forever,” and their branding and creative copy is centered around the off-road traveler — which feels particularly timely after COVID lockdowns brought back the great American road trip
  • Critically, Rivian expects 50% of its revenue per vehicle to come from recurring services over its lifetime, broken down in the chart below across charging, maintenance, software, and financing. They also assume an end-of-life resale value of the vehicle, which remains to be validated
  • On the commercial side, Rivian’s Electric Delivery Van (EDV) will be paired with FleetOS, the company’s end-to-end centralized fleet management subscription platform. This vision for this platform is to integrate leasing, financing, insurance, driver safety and coaching, smart charging and routing, remote diagnostics, collision reports, and vehicle resale. FleetOS will be interoperable with other commercial vehicles, enabling Rivian to aggregate fleets on their platform
  • Rivian’s first customer for FleetOS is Amazon, which has effectively contracted an estimated $2.5B* in revenues across fleet management and charging services. The scale of this contracted value stream gives Rivian a leg up in developing a robust charging network and scalable fleet management platform that can then be extended to other commercial customers and consumers, giving them more operating leverage than other emerging OEMs purely targeting consumer segments might have
  • Estimate: 100,000 vehicles * ($11.3k/vehicle for fleet management and $14.6/vehicle for charging-as-a-service)

Income statement

  • Rivian only recently began producing vehicles, and did not recognize revenue for the time periods reported in their S-1. They had $1B in operating losses in 2020, largely in R&D
  • However, Rivian has line of sight to $3–5B (est.) in bookings through 2025, based on their order of 100,000 commercial vehicles from Amazon, with another $3B+ in potential value from consumer vehicle bookings (48,390 pre-orders for a $68k+ vehicle)

Cash burn

  • Overall, Rivian burned $1.8B of cash in 2020 across operations and capital expenditures, and has roughly doubled its burn YTD in 2021

Competition

Rivian has substantial competition on multiple fronts:

  • Incumbent automakers, e.g. Ford and GM: Ford debuted the F-150 Lightning Electric Truck this summer, and there are reports that the company has already doubled its production targets based on early demand signals. Ford has a best-in-class service and dealer network for their core F-series, and the key question for consumers deciding between the two will be whether to choose Rivian’s innovative new platform or Ford’s established pedigree. Similarly, GM is developing an EV version of the Hummer, which is likely a precursor to electric pickup trucks and SUVs
  • Emerging innovators, e.g. Proterra and Tesla: Tesla, which has delivered ~1M vehicles over the past 18 months, claims >1M reservations for the Cybertruck, a direct competitor to Rivian’s R1T
  • Well-capitalized early-stage companies, e.g. Arrival: over 15 EV companies went public via SPAC in 2020, many of which have never produced a vehicle but have deep pockets and order backlogs. Arrival, an EV company with a delivery van, coach bus, and passenger car optimized for ride-sharing in its pipeline, has an $8B market cap and $1B+ in pipeline orders from UPS

Rivian acknowledges the competitiveness of their customer segments in their S-1, and the constraint that their exclusivity with Amazon creates in the near term. In addition to competition for customer dollars, the company will also inevitably face competition in their supply chain and talent acquisition processes.

Opportunity ahead

Rivian estimates a near-term addressable market of >$1T, of which ~45% is from vehicle sales and the remainder is from lifetime services

  • Consumer: The company estimates a $950B near-term addressable market in the US, Canada, and Western Europe. Vehicle sales for pickup trucks and SUVs make up 45% of this estimate ($420B). The remainder is from lifetime services, calculated at $68k/vehicle
  • Commercial: similarly, $81B of estimated SAM in vehicle sales in the US, Canada, and Europe expands to $209B with $65k of lifetime revenues per vehicle
  • Trucks and SUVs comprise >70% of new vehicle sales in the U.S. and represent the most profitable segment for the incumbent automakers. According to Morgan Stanley, the Ford F-150 accounts for the majority of Ford’s profit.

We are at an inflection point for EVs in Rivian’s core segments — passenger cars and LCVs

Risks

S-1s always contain a laundry list of risks, and Rivian’s S-1 was no different with 94 highlighted risk factors. Most risks were fairly boilerplate, though there are two worth mentioning:

  • Supply of battery cells: While supply chain disruption is a concern for almost any hardware business, Rivian appears to be especially worried about securing a stable, long-term supply of battery cells. Specifically, top of mind issues include the inability/unwillingness of battery cell manufacturers to build enough battery cell plants to supply enough cells for the industry, disruptions in supply due to quality issues and recalls, and increase in the cost of raw materials (e.g., lithium, nickel, and cobalt). Rivian is mitigating cell supply risk by developing its own cell manufacturing capabilities, and we are beginning to see other automakers (e.g., Ford, GM) do the same. While the auto industry seems to be on a path to eventually electrifying nearly 90M in annual U.S. car sales, battery cell supply strategy could end up separating the winners from the losers in this increasingly crowded space.
  • Amazon exclusivity: Rivian calls out that a significant portion of its initial revenue will come from one customer, Amazon. While one would be hard-pressed to find a more consequential customer, the agreement between the two companies stipulates that Rivian will exclusively provide last-mile delivery vehicles to Amazon for four years, whether or not Amazon actually chooses to purchase vehicles from them. From Years 4–6, Amazon will have a right of first refusal to purchase any delivery vehicles that were produced. What this means is that Rivian will need to prioritize Amazon above all else while also fulfilling the promise of delivering exceptional experiences to its loyal customer base.

Disclaimer: The views expressed here are those of the individual G2 Venture Partners (“G2”) personnel quoted and are not the views of G2 Venture Partners or its affiliates. Certain information here has been obtained from third-party sources. While taken from sources believed to be reliable, G2 has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters.

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Published in G2 Insights

G2 Venture Partners is a venture and growth capital firm investing in transformative technology companies at their inflection points to build a sustainable future. | www.g2venturepartners.com

Written by G2 Venture Partners

We invest in transformative technology companies at their inflection points to build a sustainable future.

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