Rivian’s involvement could be key to Ford’s EV success as it seeks to overthrow Tesla

A fierce battle is raging between traditional automakers and newcomers like Tesla to take the lead in electric vehicles. Ford Motor Co. could however hold the trump card: a 12% stake in the electric vehicle maker and Rivian, backed by Amazon.

“We are really excited about Rivian; it’s a big American company, ”Ford CEO Jim Farley told CNBC’s Jim Cramer at the inaugural Cramer’s Investing Club on Thursday. “You can argue about what it’s worth versus what Ford is worth, but I really like the talent there and I really like their product position. They go after the owners of pickup trucks and vans and we like those kinds of people.

Cramer asked Farley how Ford (NYSE: F) might change the narrative that Tesla (NASDAQ: TSLA) is the leader in electric vehicles.

“The only way we can change this [narrative] do we need to develop our electrical business in order to be competitive with them on a large scale? [and] beat them in more profitable segments like pickup trucks and commercial vans, ”Farley replied. “And we have to make money with these vehicles.”

That’s when Ford’s 12% stake in Rivian (NASDAQ: RIVN) kicked in. Valued at around $ 10 billion today, that stake could fund future efforts as Ford seeks to remake itself as an automobile manufacturer of electric vehicles.

Read: Rivian stock closes above $ 100 per share on first day of trading

Read: A treat in San Francisco: Amazon tests Rivian electric vans

“There are going to be a lot of opportunities for us for more capital, but if we’re going to allocate it, we have to return the cost of capital more to our shareholders,” he said. “It’s too early to say what we’re going to do, Jim, but it gives us a lot of options that we didn’t have. “

Farley said Ford has stopped accepting reservations for its F-150 Lightning electric pickup, noting that the company has received 200,000 reservations for the vehicle, which is expected to start full production in mid-2022. Ford cannot only build between 70,000 and 80,000 units. every year due to battery constraints, he said.

“We had to find batteries and that’s… what we’re doing,” he said. “As big companies, we’re not used to getting involved in things we don’t have all the answers to. But we think we can do it. In 24 months, we will double our capacity for these battery-electric vehicles. We are in the process of doing so. We have had many progressive commitments from our Georgia plant and we believe we can do it. “

But Ford’s transition to a battery-electric vehicle (BEV) maker may depend on its Rivian equity.

“I am a racing driver. Second place is the first loser. That’s how I see business, ”Farley said, noting that in the right situation, part of Ford’s stake could be used to fund BEV investments or for acquisitions in the space. “Ford employees deserve the best leadership and our investors are banking on this company. You should expect us to really reinvent the brand as we go electric, and we do with the F-150 Lightning. You have already seen it; now we have to develop a lot more such good vehicles and build them and do it cost effectively.

Look: WHAT IS THE TRUCK?!? Live at the virtual event of autonomous and electric vehicles

Rivian went public on November 10, opening at $ 106.75, up from $ 78 before the IPO. Amazon (NASDAQ: AMZN) is Rivian’s largest shareholder with a stake valued at nearly $ 20 billion. The e-merchant has been testing Rivian vans since March in the San Francisco area and has pledged to put 10,000 on the road by 2022 and 100,000 by 2030. The startup is also developing an electric pick-up. , the R1T, and an electric SUV, the R1S. These two vehicles are expected to sell for around $ 80,000. The price of the delivery van was not disclosed.

Rivian stock has been trading in a range of $ 115 since the end of November. Morgan Stanley came out favorably for the stock, in part because he believes Amazon will increase its order for vans.

“We believe Amazon’s 100,000 units order (as of 2019) is an expired number,” Morgan Stanley wrote in an analyst note. “We think it’s more likely to be closer to 300,000 units through 2025/2026. Rivian is a “buy option” on Amazon’s desire to decarbonize its delivery / fulfillment footprint in a highly visible manner.

Morgan Stanley, which expects Rivian to have negative cash flow through fiscal 2026, predicts a price target of $ 147 for its shares, falling in a range of $ 94 to $ 165. That could reach $ 200 per share if Rivian is able to achieve sales of 2 million units by 2030, the company said.

For Ford, Rivian’s ability to deliver, even as a direct competitor, could be the key to its own transition to an electric vehicle maker.

Click for more articles from Brian Straight.

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