Rivian IPO Suggests Gores Guggenheim Ought to Be Worth More Today

Will Ashworth

Mon, Nov 29, 2021, 5:28 AM 4 min read

Page 9 of the merger presentation shows Polestar sold 10,000 vehicles in 2020 and should sell 29,000 in 2021, at prices between $50,000 and $155,000. In 2021, Polestar should have $1.59 billion in revenue from those sales and a $700 million EBITDA (earnings before interest, taxes, depreciation and amortization) loss.

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Rivian expects to have 1,000 vehicles delivered by the end of 2021. Based on retail prices for its R1T pickup (starts at $67,500) and R1S SUV (starts at $70,000), that’s $70 million in revenue.

So, let me see if I get this straight.

Polestar sells 29x as many vehicles in 2021 while generating 23x as much revenue, yet it’s valued at 1% of Rivian’s market capitalization of $102 billion. And, sure, Rivian does have some excellent investors in Ford (NYSE:F) and Amazon (NASDAQ:AMZN), but that hardly justifies the $101 billion valuation gap between the two businesses.

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I find it hard to believe that GGPI stock is trading at less than $14 despite having substantial revenues post-merger.

Is it purely because investors don’t think the merger will happen? I think so.

How’s That?

InvestorPlace’s Joanna Makris discussed the Polestar IPO valuation in mid-November:

GGPI’s merger with Polestar pegs the company at a roughly $20 billion enterprise valuation. That’s a fraction of LCID and Rivian, which command market capitalizations of approximately $70 billion. Notably, Rivian upsized its recent IPO valuation, reflecting bullish investor sentiment. Put another way, Polestar’s implied valuation represents a price-to-sales multiple of 3x estimated 2023 sales and 1.5x estimated 2024 sales. In contrast, rivals Tesla (NASDAQ:TSLA), Lucid (NASDAQ:LCID), Nio (NYSE:NIO) and Xpeng (NYSE:XPEV) trade at multiples of between 4x and 11x 2023 sales. Unlike the Titanic, GGPI stock looks more likely to go up than down.

The big thing to remember is that Polestar is rolling 100% of its equity into the merger. So after the closing, it will own 94.1% of the overall business. Gores Guggenheim investors will own 3.8%, its sponsor will own 0.9%, and the PIPE (private investment in public equity) investors will own the remaining 1.2%.

So, the non-Polestar equity holders will own 125.4 million of the 2.13 billion pro-forma shares. At current prices, that values the non-Polestar equity at $1.7 billion, $620 million higher than its current value. However, you have to take out $250 million for the PIPE investors. But even still, that leaves a valuation of $1.45 billion, $370 million higher than its current market cap.

So, by my back-of-the-napkin calculation, GGPI’s share price assuming the merger goes through should be worth at least $17.98, 32% higher than its current price.

The Bottom Line

Nanalyze discussed the Polestar/Gores Guggenheim merger in October, focusing on the potential stumbling blocks to GGPI lifting off any time soon. Of particular concern is the company’s supply chain.

Between chip and lithium battery shortages, the tech investor has warned off its readers, saying it’s best to wait until the merger is completed before plunking down your hard-earned capital.

Fair enough.

I often suggest to InvestorPlace readers that if a stock is destined to be a long-term winner (five to 10 years out), there is no rush to run out and buy it. Instead, get to know the company a little better. You might even get a better price in the process.

As for rosy predictions, these are numbers come from a business that is currently owned by Volvo (OTCMKTS:VLVLY), whose trailing 12-month sales and operating profits are 366.8 billion Swedish Kroner ($40.4 billion) and 47.3 billion Swedish Kroner ($5.2 billion), respectively.

I think it’s safe to assume it knows what it’s doing regarding actuals versus projections. Like any investment, there is risk present.

However, from where I sit, GGPI seems like a better buy for the aggressive investor than RIVN. We’ll know for sure sometime in 2022.

Vroom. Vroom.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.