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Rivian’s Importance To Amazon’s Long-Term Strategy

Electric truck maker Rivian is now worth more than Ford and GM, despite zero revenues. Investors believe that the company will benefit from Amazon, but few realize that Amazon also stands to win.

Rivian Automotive  (RIVN) - Get RIVIAN AUTOMOTIVE, INC. Report went public on November 9 and is currently valued at over $100 billion on the heels of a post-IPO rally. The electric vehicle startup is worth more than Ford  (F) - Get Ford Motor Company Report and General Motors  (GM) - Get General Motors Company (GM) Report, yet it expects to deliver revenues of only zero to $1 million in Q3.

Figure 1: Rivian's R1T model on RIVN's debut on Nasdaq.

Figure 1: Rivian's R1T model on RIVN's debut on Nasdaq.

There is one reason why the market seems optimistic about Rivian’s future financial performance: Amazon  (AMZN) - Get Amazon.com, Inc. Report. Not only does the e-commerce titan own 20% of the EV maker, it has also ordered 100,000 Rivian vehicles to be delivered by 2030. The partnership is a big deal for Rivian, but it may also be one for Amazon.

(Read more from the Amazon Maven: Amazon: An Unlikely Battleground, An Underrated Opportunity)

A profitable venture

Amazon’s investment in Rivian has already paid off handsomely. In an SEC filing, the EV company revealed that Amazon has invested more than $1.3 billion in Rivian to date.

As of September 30, Amazon disclosed its equity investments to be worth $3.8 billion, “including preferred stock of Rivian Automotive Inc. representing an approximately 20% ownership interest” at the time. Note that 20% of RIVN’s market cap today represents approximately $30 billion, which is almost as much as Amazon’s 2019 and 2020 net income combined.

Figure 2: Amazon's investment in Rivian.

Figure 2: Amazon's investment in Rivian.

(Read also: Rivian Stock: A Zero-Revenue Company Worth $116 Billion)

A great opportunity

Rivian’s contract to deliver 100,000 electric vehicles to Amazon may have sounded great for RIVN stock investors – but the deal may also be quite beneficial for Bezos’ behemoth. Amazon has been looking for ways to reduce its delivery costs, and Rivian trucks could be part of the solution.

According to Business Insider, last-mile delivery corresponds to 53% of shipment expenses. Another study conducted by the University of Michigan in 2018 shows that electric vehicles cost only 43% as much as those that run on gasoline. Therefore, Amazon could establish a new competitive advantage over other retailers once it puts its new electric vans on the streets.

Double the benefit

Rivian intends to deliver 10,000 vehicles to Amazon next year. Judging by Elon Musk’s past promises and failures to stay on schedule, one might be a little skeptical of Rivian’s aggressive goal too. Electric cars are still fairly new technology. Building prototypes is very different from mass-scale production, especially considering battery costs and the current microchip shortage.

The high levels of uncertainty in execution at this early stage could mean that RIVN, despite the rich valuations, might still be discounted relative to its potential performance. If the company delivers the goods as planned, Rivian stock could climb even further. Amazon would stand to benefit both ways: (1) lower fulfilment costs and (2) a boost in value of the Rivian ownership stake.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)