Rivian Automotive (RIVN) and Amazon (AMZN) are currently in talks to end the exclusivity part of their 2019 deal in which Rivian is required to sell all of the electric it produces to Amazon.
Current Deal
The update comes after Amazon notified Rivian that it wants to buy 10,000 vans this year which was in the low end of a previously provided range by Amazon. Amazon said it is still committed to buying 100,000 vans from Rivian by 2030 but the recent numbers have Rivian wanting to remove the exclusivity agreement.
Investors immediately responded with Rivian shares falling over 3% and Amazon stock nearly up 2% following the news. However, a potential end to this deal or alteration looks like a great win-win opportunity for both companies as Rivian looks to serve other customers and Amazon reaps the benefits of a preferred customer and 17% stake in Rivian as the largest shareholder.
Why Rivian Should Move On
When Rivian was just starting out as a new electric vehicle manufacturer, having a company like Amazon invest in the business and become a major customer was a massive help to say the least. However, Rivian is in a space now where it had around 114,000 non-Amazon reservations in September and was expected to have a backlog until late 2024.
The reservations are also on higher end vehicles that more than likely have much stronger profit margins for Rivian than the vans it sells directly to Amazon. There is a next to zero percent change that Amazon, again its largest shareholder, commits to 100,000 vans by 2030 and pays the sticker price for Rivian vehicles. Rivian no longer has a demand problem and instead needs to focus on fulfilling current orders as it plans to deliver a total of 50,000 vehicles in 2023.
The manufacturing of vans for Amazon isn’t the exact same as the production of an R1T truck for retail customers but converting resources for EV vans to trucks is certainly possible and likely wouldn’t be that costly or inefficient for a company that burned $6.6 billion in 2022. Rivian needs to focus on fulfilling other customer orders as well as sell its vans to other commercial businesses that will pay the sticker price at least a higher price than whatever deal big daddy Amazon gets.
Time for Amazon to Let Rivian Make it on Their Own
Sure, Rivian wanting out of an exclusivity agreement makes sense but why would Amazon give up the exclusive access? Well the company remains the largest investor in Rivian so it's obviously going to want to see its investment succeed and Amazon itself might now be getting in the way of that.
With Amazon now coming in on the low end of the range for vans it wants to acquire this year at 10,000, Rivian now has an extra 40,000 vehicles it expects to deliver to the rest of the market. Those 40,000 will go to retail customers looking for the new trendy EV trucks and SUVs but there is a strong market for commercial vans as well. Amazon having an exclusivity deal blocks out a part of the market that Rivian has the tools to compete in and offer more competitive prices now with higher economies of scale.
Amazon may not want to give up the position where it gets all the vans it wants, but that's where an alteration to the current agreement instead of ending it could come into play. Rivian and Amazon should reach a new agreement in which Amazon is essentially a preferred customer that gets first access to Rivian vehicles with a target number each year and then anything else Rivian produces can be sold to the rest of the market. A win-win situation where Amazon gets its vans and Rivian is able to expand its commercial business or just focus more on the retail side. Amazon additionally benefits from Rivian’s success as a major shareholder.
So, it’s time for Amazon to let little Rivian make it on its own without the kiddie wheels of a guaranteed customer as demand is no longer an issue for Rivian.
