Rivian IPO and Elon Musk’s Offer to Sell Stock—Possible Connection

Mohit Oberoi, CFA - Author

Nov. 10 2021, Published 8:59 a.m. ET

EV startup Rivian has priced the IPO at $78 per share, which is above the already bumped-up IPO price range. The company sold 153 million shares as part of the IPO, which is higher than what it originally planned and raised $11.9 billion from the IPO. Apart from Rivian’s IPO, another notable event in the EV industry has been the crash in Tesla stock (TSLA).

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Tesla stock has tumbled over the last two trading sessions after CEO Elon Musk offered to sell a 10 percent stake in the company. He held a Twitter poll on whether he should sell a 10 percent stake in the company and most people voted "yes." Is there a connection between the crash in Tesla stock and the Rivian IPO?

Elon Musk’s views on Rivian

Previously, Musk scoffed at the high valuations of startup EV companies like Lucid Motors and Rivian. While Lucid is led by a former Tesla engineer Peter Rawlinson, Rivian is backed by Amazon whose founder Jeff Bezos isn't exactly friends with Musk.

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Musk has called Bezos a copycat in the past and also backed calls to break up Amazon. Apart from the EV industry, the billionaire rivalry between Musk and Bezos has been at play in the space industry also. Musk’s SpaceX competes with Bezos’ Blue Origin. Meanwhile, Musk has beaten Bezos to become the world’s richest person.

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Musk even mocked Rivian's autonomous driving capabilities. Rivian, like Tesla, charges $10,000 for the autonomous driving feature. Musk expects the autonomous software, which Tesla controversially calls the FSD (full-self driving), to eventually cost $100,000.

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Has Elon Musk sold any Tesla shares?

Musk held a Twitter poll on whether he should sell a 10 percent stake in Tesla. While we don’t know for certain if he has sold any Tesla shares, the timing of Musk’s recent antics might raise suspicion.

Musk held the poll days before Rivian’s IPO. Now, one has to be naïve to think that Musk didn't know that the stock would crash following his proposal. Incidentally, in May 2020, Tesla stock fell when he called the stock "overvalued" in a tweet.

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It's hard to remember an incident when a company’s CEO publicly called the stock overvalued. However, in less than a year, Musk defended Tesla’s valuation even though the stock had jumped multi-fold from the levels where he described them as being overvalued.

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Why Musk wants to sell Tesla shares

Now, the usual argument behind Musk’s offer for selling shares is that he wants to avoid the increase in capital gains tax that the Biden administration is proposing. Musk could save billions of dollars in taxes by selling shares before the new tax regime sets in.

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While it’s a valid argument, the timing of the poll might be suspicious. The valuations in the EV industry have been working on a derivative model and other EV names are benchmarked to Tesla. Lucid Motors also tried to piggyback on Tesla’s soaring market cap and compared itself to Tesla in the investor presentation.

Rivian went with the IPO process when there was momentum in EV stocks, especially Tesla. Positive EV market sentiments helped Rivian get an attractive valuation in the IPO. However, the near-term price action of RIVN stock would depend on how Tesla stock moves.

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Will RIVN stock rise or fall after the IPO?

With the EV market sentiments turning somewhat bearish after Musk’s proposal to sell shares, RIVN’s short-term price action might be impacted negatively. Did Musk deliberately try to impact Rivian’s IPO? We can’t say with certainty, but the fall in Tesla stock would surely have an impact on RIVN's price action.

Listed EV stocks have also fallen over the last two days and even Rivian will face a reality check as it starts its journey as a publicly-traded company.


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