Rivian: Charging Ahead with Electric Vans
By: Nick Zhang & Hubert Gu
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Rivian: Charging Ahead with Electric Vans
Over the past decade, the electric vehicle (EV) market has become saturated due to an increasing number of car manufacturers entering the space as environmental concerns of fossil fuel-burning vehicles mount and favourable government policies drive EV adoption. The industry was valued at $500 billion globally in 2023, with a projected 7 percent CAGR through 2029, presenting a compelling opportunity for established car manufacturers and startups alike. Despite its large market size, the industry remains primarily dominated by Tesla, which held 54 percent of all US EV sales last year with smaller players such as Rivian and Lucid struggling with profitability and finding their footing with such intense competition.
The growing B2B segment in electric delivery vans (EDV) has gained traction alongside consumer EVs. While the industry was valued at a relatively small $29 billion in 2023, it is projected to hold a 13 percent CAGR towards 2032. This results from a new wave of adoption heralded by major logistics players such as Amazon and FedEx incorporating EDVs into their fleets. These logistic players are incentivized by the significant long-term savings in fuel expenses and reduced maintenance costs. Furthermore, corporations will inevitably seek outlets to reduce their environmental footprint as they become more conscious of their environmental impact. EDVs serve as a potential path forward in this avenue for many logistics and delivery-oriented companies, presenting a lucrative opportunity for EV manufacturers to expand into this growing space.
Startup Struggles
Rivian Automotive, Inc. (Rivian) is the second-largest American electric vehicle (EV) manufacturer and sixth-largest global player with a market capitalization of $10 billion and a production of over 57,000 EVs in 2023. Rivian’s main source of revenue is generated through sales of its consumer vehicles, while other income sources include subscriptions to its fleet management software, FleetOS. Furthermore, Rivian has secured a milestone EDV contract with Amazon, promising the delivery of 100,000 custom EDVs by 2030 with an estimated contract value of $14 billion.
In its November 2021 IPO, Rivian had a share price of over $100, which has since plummeted to $11 per share as of late November 2024, representing a substantial 89 percent decline in market capitalization. This lack of shareholder confidence stems primarily from Rivian’s dismal gross margins of -40 percent as opposed to Tesla’s 18 percent. The company has failed to scale its production to a profitable level, losing money on each sale. To add to Rivian’s problems, the company has struggled to keep pace with its delivery estimates; in Q3 2023, the company was forced to cut its delivery target by nearly 10,000 units as a result of component shortages. Without meeting its targets, Rivian will be unable to expand its production to benefit from economies of scale and escape its current path of unprofitability.
Tesla has positioned itself well for success in this growing sector. The company has seen unparalleled sales growth and production scale. This has granted Tesla a strong market position and economies of scale, which have yielded an impressive 18 percent gross margin, making it the strongest North American EV player. Furthermore, Tesla’s Model Y SUV was the most-sold car in the world this year, proving its establishment as the go-to EV company for households worldwide . From an infrastructure standpoint, Tesla pulls further ahead, with 60,000 Tesla Supercharger charging stations compared to Rivian’s mere 400.
Despite not being very strong, Rivian’s current profitability and production numbers are comparable to Tesla's in its early days. The difference arises in that the EV industry was much newer when Tesla was expanding, giving Tesla the advantage of being the sole EV manufacturer. Nowadays, the EV industry grants consumers far more choices and allows investors to invest in many players. Established automakers like GM and Ford have significant capital and expertise to effectively catch up to Tesla’s lead. This leaves Rivian in an unenviable position where the company lacks the market dominance of Tesla and the resources and facilities of traditional automakers. In contrast, the company struggles with unprofitability and production issues.
A lifeline was thrown to Rivian in late June 2024 when Volkswagen announced an investment of up to $5 billion. This partnership was formed so that Rivian and Volkswagen could co-develop software architecture. Effectively, Volkswagen was gaining access to Rivian’s current industry-leading software, and Rivian was gaining additional cash for operations and growth. However, the long-term benefits of this partnership are questionable. While Volkswagen will benefit from the software that Rivian has to offer, it’s unclear whether or not this investment will solve Rivian’s production cost issues.
In late November 2024, Biden’s Department of Energy awarded Rivian a $6 billion loan to build a factory in the state of Georgia with a 400,000-vehicle production capacity. The first stage of the plant is expected to open in 2028 with a 200,000-vehicle production capacity. This production expansion is still over 4 years away, barring delays, which may be too long for Rivian to take advantage of economies of scale. It is also important to note that Rivian has yet to fully utilize its existing plant. Despite Rivian’s current plant being rated for 85,000 unit production capacity, it only produced 54,000 units in 2023, indicating that production capacity is not where the current bottleneck lies. Rivian faces pressure to deliver on its consumer vehicle orders and its EDV contract with Amazon. This splits their priorities and resources at a time when Rivian has to be laser-focused on achieving profitability.
The EDV Opportunity: A Wide-Open Road
Rather than bash heads with automotive giants in a saturated space, Rivian should focus its business on a sector where it is pioneering growth and innovation: Electric Delivery Vans (EDVs). The EDV sector is currently flooded with large automakers repurposing their mainstream delivery vans to become electric, but no EDV can match the specialized software and hardware that Rivian offers. Businesses such as last-mile delivery companies increasingly value real-time tracking and fleet management functionality. Rivian’s ability to have its vans “optimized for various commercial uses” helps it differentiate its product from the cookie-cutter vans offered by other manufacturers. For example, reviews of the Ford e-Transit state the many efficiency and drivetrain issues that are present by simply converting a gas van to electric, all issues Rivian has avoided by building its EDVs from the ground up. With 10,000 of their 100,000 Amazon contract units delivered, Rivian is far ahead of its competitors who have either far smaller contracts or failed to give orders. In August 2024, for instance, DHL purchased 2,400 e-Transit vans, taking its total fleet to 4,400, which is not remotely comparable to the scale of the 100,000 Rivian-Amazon contract. This Rivian-Amazon deal was originally an exclusive partnership between the startup and the delivery conglomerate. Still, exclusivity was terminated in November 2023 due to lower-than-expected orders, presenting a massive opportunity for Rivian to capitalize in this sector.
The remaining six years on their Amazon contract also act as a buffer for Rivian to develop the EDV side of the business successfully. Without a guaranteed source of revenue, companies often face pressure to reduce costs and complete contracts quickly, leading to corner-cutting that impacts product quality. For instance, Boeing's financial challenges and competitive pressures led to cost-cutting measures during the development of the 737 MAX, which resulted in significant safety issues and a tarnished reputation. Recurring revenue from the Amazon contract opens up the opportunity to take on more minor contracts while maintaining the high quality of its EDVs. This fosters the organic growth in the EDV space that Rivian is looking for, with proven quality and successful small contracts improving their reputation, market share, contract size, and revenue growth.
Implementation: Road to Success
While this solution allows for the continued use of Rivian’s established EDV production infrastructure, a solution must also be found regarding their traditional EV branch. As stated before, Rivian’s main issues lie within their supply chain and gross margins; their IP and assets are still industry-leading as the result of over a decade of specialized EV R&D, positioning them as a compelling acquisition for established car manufacturers seeking to compete in the growing and attractive space. Thus, their current partner, Volkswagen, represents a strong candidate for acquiring the IP and infrastructure of Rivian’s traditional EV division.
Developing a profitable EV product is costly in terms of both time and financial resources. Volkswagen recently announced a lineup of EVs from their new “Scout” EV brand, and while these vehicles haven’t garnered any reviews yet, their previous attempts at EV vehicles have been underwhelming at best. Taking on Rivian’s years of EV R&D and its existing infrastructure could give Volkswagen a jump-start in the EV space, reducing the time and resources needed to build a successful brand. Moreover, as the world’s largest automaker by revenue, Volkswagen is more financially capable of sustaining the cash burns associated with EV development. Hence, Volkswagen would greatly benefit from acquiring Rivian’s IP and EV-related assets by leveraging its financial strength to further R&D and create a profitable and popular EV lineup.
Steering into Opportunity
Given the oversaturation of the consumer EV industry and Rivian’s internal cost difficulties, the company should shift its focus away from consumer vehicles and commercial EDVs. The prominent contract with Amazon and proven vehicle quality illustrate Rivian’s potential in the EDV space. Paired with the global electrification of vehicles and increasing interest in EDVs from shipping conglomerates, a strategic transition provides Rivian with a fresh opportunity in an untapped market. Moreover, Rivian’s existing EV infrastructure and significant R&D means it is a compelling acquisition target for established car manufacturers seeking to expand into the attractive EV space, notably Volkswagen, which has an existing relationship with Rivian. Dedicating to a single vehicle type also solves Rivian’s gross profit concerns, allowing it to consolidate production and decrease the cost of revenue. In the long run, pioneering the space will enable Rivian to position itself as the go-to brand for EDVs. Given its existing capabilities to produce at scale and established brand quality in the sector, this opportunity offers a solution to Rivian’s financial crisis that stems from its consumer vehicle production.
