Rivian earns $3 billion by driving Mercedes into a frenzy

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Rivian just added nearly $3 billion to its market cap in one day, and all it took was a fairly straightforward deal with a new brake.

The new company and Mercedes-Benz will join forces to build large electric trucks in Europe “in a few years”, both revealed on Thursday, sending Rivian shares up 11%, their biggest jump in four months. As the announcement was in the details, it sent an obvious message. Yes, this young pickup plug maker is having trouble ramping up production, but one of the world’s most storied manufacturers still sees real potential.

Friendship with a competitor is nothing new for Rivian. One of the reasons investors were so bullish on the company when it was preparing to go public a year ago was the way General Motors and Ford vied with each other to forge a strategic partnership with the upstart during period when it was in the process of securing significant support from Amazon. One of Ford’s senior executives at the time later boasted that he had “stolen” a promising investment from its Detroit-based nemesis at the 11th hour.

There’s another “blast from the past” element to this from Mercedes’ perspective, as Baird analyst Ben Kallo put it in a note to clients on Friday. Daimler played a critical role in helping Tesla take off, acquiring a stake during the Great Depression and buying powertrains from the company to power Mercedes hatchbacks. Elon Musk has described this deal as fundamental to Tesla surviving its early struggles.

There’s a lot left to unpack about this new tie — how and why it came about, what it means, and who’s winning and who’s losing. Here are some thoughts and questions to ponder:

Saving cash

In the months leading up to and following its initial public offering in November, Rivian hired furiously and built out sales and services to support its growth ambitions. Those have been suspended from the company’s plant in Normal, Illinois, which doesn’t assemble nearly as many R1T trucks, R1S SUVs and Amazon delivery vehicles. Supply chain woes plague the entire auto industry, but they hit inexperienced companies particularly hard.

While Rivian still had $15.5 billion in the bank at the end of June, management has made several moves of late to be more capital efficient amid rising costs and worries about a global recession. The joint venture with Mercedes will be a cheaper way to enter the European market and strengthen the company’s credibility with suppliers and potential customers, who might otherwise be dupes.

Much of Rivian’s cash has already been earmarked for other expensive projects. It has yet to break ground on a $5 billion plant near Atlanta, and executives have said the cash on hand offers just enough runway to get to the start of production of the mid-priced car that will be built at that plant. until 2025.

The burden-sharing with Mercedes may also reflect how difficult it is for companies in the EV space to raise capital, DA Davidson analyst Michael Shlisky wrote in an email. In a July memo to staff about cutting Rivian’s 6% workforce, CEO RJ Scaringe noted that global capital markets are tightening. “We need to be able to continue to grow and scale without additional funding in this macro environment,” he wrote.

Ford Ties

After Ford worked so hard years ago to beat GM to the punch in the Rivian tie-up, their relationship has taken many strange turns.

First, Joe Hinrichs, the former Ford chairman who played a leading role in brokering the partnership, abruptly retired and left Rivian’s board. Shortly thereafter, the companies dropped plans announced three months earlier to jointly develop Lincoln’s first all-electric model. Alexandra Ford English, the great-granddaughter of founder Henry Ford, replaced Hinrichs as Rivian director, but she didn’t stay long. Another replacement resigned leading up to Rivian’s IPO, leaving Ford without a board seat.

Ford and Rivian have been relatively mum about their future together. Now the former, which still holds a 9.6 percent share of the latter, may face more formidable competition in the commercial vehicle business that is a huge point of pride and emphasis for Ford CEO Jim Farley. The automaker announced plans just this week to start selling the electric version of its best-selling European delivery truck, the E-Transit Custom, about a year from now.

Bullish for Amazon

What Rivian, Mercedes and Ford all have is Amazon.

The e-commerce giant has a contract with Rivian for 100,000 electric trucks to be delivered by the end of the decade. He also buys trucks from Ford, Mercedes and others. Given the size of Amazon’s global fleet and its ambitious sustainability goals, it must look beyond Rivian for electric last-mile delivery options.

Amazon has exclusive rights to Rivian’s delivery vehicles for four years after taking delivery of its first one, as well as the right of first refusal to buy its trucks for two years after that. He certainly hopes that the Rivian-Mercedes deal will mean more availability of electric vans, and ideally at a lower cost.

He continued

Rivian’s pursuit of manufacturing in Europe is no surprise: executives have had their eye on the market for some time.

The company has scouted locations for a potential factory in locations including the United Kingdom, Germany and Hungary, people familiar with the matter told Bloomberg in February last year. Rivian’s choice to set up shop with Mercedes somewhere in central or eastern Europe will be a disappointment to those courting the company.

In a sign of how eager leaders were to make the investment, then-prime minister Boris Johnson tried to woo Scaringe himself, Sky News reported late last year.

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