(Bloomberg) — (This is the second story in a series examining Rivian’s origins and its future. Read the first installment here.)
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Jeff Bezos stood before a packed conference room in Washington, D.C., and declared war on climate change. It was September 2019. His secret weapon, tucked deep into a chart-heavy presentation, was a bug-eyed cargo truck built by a startup few people had heard of.
“I am incredibly excited to announce that we have just placed an order for 100,000 electric delivery vans,” Bezos, then chief executive officer of Amazon.com Inc., told the stunned crowd. “They will be built by a company called Rivian.”
Amazon would be carbon neutral by 2040, he pledged — a game-changing moment for Bezos and the millions of Prime customers. But this was an even more defining moment for Rivian. The order immediately separated the auto rookie from the parade of promising electric startups, providing backing, a big book of business and legitimacy. It also would soon start to draw in additional investment from major players, including Ford Motor Co., T. Rowe Price, D1 Capital Partners and Fidelity.
For Rivian’s founder, R.J. Scaringe, the Bezos endorsement opened doors that were inaccessible to his rival Elon Musk in the early days of Tesla. While most of Rivian’s marketing focuses on its sleek and powerful consumer models — and Scaringe’s vision for creating the Patagonia of pickups — the company is driven by the business Amazon is providing. Without it, say people familiar with the company’s financials, there would be no hope of the $80 billion valuation Rivian is aiming for in its upcoming initial public offering.
Amazon’s primacy as a customer is underscored now as production gets underway at Rivian’s Illinois factory. Scaringe has prioritized building hundreds of delivery vans this year, while production of the highly anticipated new electric pickup runs at a trickle, according to people familiar with the plan.
On Friday, Rivian shared new details of the Amazon deal in a filing with the U.S. Securities and Exchange Commission, revealing how closely its fate is tied to one of its biggest benefactors. The e-commerce giant will have exclusive rights to Rivian’s delivery vehicles for four years after receiving its first one, and it gets right of first refusal to buy the vans for two years after that.
Rivian’s official debut came about a year before the Bezos announcement, at the 2018 Los Angeles auto show. Scaringe, a Massachusetts Institute of Technology Ph.D., used the annual event to formally unveil his company, which had been operating in stealth mode until then. He’d been working on a premium electric pickup and an SUV.
Rihanna was among the guests at the launch party the night before the event. The singer posed for pictures with Scaringe in front of the sleek pickup, offering a thumbs up. She was there with her then-boyfriend, Hassan Jameel, whose family conglomerate Abdul Latif Jameel had already invested millions in the startup.
In a 22-minute pitch at the car show, Scaringe explained that every detail of the R1T pickup and its close SUV cousin, the R1S, was developed in-house: the headlamps, storage, battery management system and quad motor system. The trucks would be built at the company’s recently acquired factory in Normal, Illinois. A team outside of Detroit was refining the engineering. And in Irvine, California, workers were designing the core battery and propulsion technology.
Scaringe, it turns out, was steering his venture into an entirely empty slot in the industry’s fastest lane. Americans were rapidly ditching their sensible sedans and indulging in the bigger is better ethos. As gasoline prices plummeted, SUVs became the modern family wagon and pickups were snapped up by suburban cowboys whose heaviest load was hauling mulch for the garden. By 2015, trucks and SUVs were outselling traditional cars in the U.S. Today, they account for three-quarters of the market, prompting automakers like Ford to get out of the sedan business entirely.
“When Rivian showcased its electric trucks and SUVs, it gave the EV market hope in the sense that electric vehicles could evolve to meet more mainstream preferences,” says Jessica Caldwell, executive director of insights at auto-market researcher Edmunds.
Rivian started to take pre-orders for the consumer vehicles at the L.A. show. Potential customers have put down a refundable $1,000 deposit to buy 48,390 R1T and R1S models. By comparison, Ford already has surpassed 150,000 non-binding reservations for its F-150 Lightning.
The most-hyped Rivian consumer today is Bezos, who has never said publicly how the startup landed on his radar. There are several connections between the two companies that offer some clues. In mid-2018, Rivian worked with a production company owned by director Peter Berg, who knows Bezos, to film material that would later be used at Rivian’s L.A. auto show reveal, people familiar with the matter said. Some of the impressive aerial photography was shot by Black Ops Aviation, a company owned by Bezos’ now-girlfriend, Lauren Sanchez, the people said. Through the companies’ interactions with Rivian, word eventually got back to Bezos about a startup with an intriguing electric truck that was worth a look.
Due diligence by Amazon followed and in the late fall of 2018, Bezos flew to Rivian’s engineering facility in Plymouth, Michigan, and met with Scaringe. The Rivian founder presented a detailed document: his vision for an electric future. Throughout Amazon’s search for an electrified fleet, a particular sticking point was just how expensive it would prove to mass-produce the electric vans, according to a person familiar with the matter. Until that point, Bezos and Amazon had found no company that could build a battery-powered van at scale. Now he had.
“We weren’t super excited about the products that were available,” Ross Rachey, Amazon’s director of fleet and product, said in an interview in August 2020. “It was a combination of established manufacturers who were maybe a year or two farther out than we wanted. And it was a host of startups, some compelling, some non-compelling.”
In February 2019, Amazon led a $440 million investment round in Rivian just days before it stood up a target of reaching net zero carbon for half of all shipments by 2030. Six months later, Bezos was in Washington with more big, green goals: a plan to get all of its energy from renewable sources by 2030 and to become entirely carbon neutral by 2040. (Amazon, Rivian and Berg declined to comment for this story. Black Ops Aviation did not respond to a request for comment.)
Scaringe had built two lines of business: one reliant on a just-in-time delivery empire and the other on environmentally conscious consumers. The vans for Amazon would deliver steady revenue, while the SUVs and trucks try to keep their momentum in a fickle retail market far more sensitive to economic conditions.
There’s a clear recognition inside Rivian and with its investors that the van for Amazon is a priority and the pickup a sideshow until production can be ramped up to meaningful volumes. The deal gives Rivian visibility and guaranteed revenue, along with a deadline. An all-hands-on-deck edict has been issued to get the project up to speed — for now, the R1T is taking a back seat.
Rivian’s most immediate goal is to deliver 300 vans to Amazon by year-end, according to people familiar with the deal. The first 10,000 units are due by the end of 2022. The full order of 100,000 vans is due by the end of the decade. The vans, in different configurations, are principally for last-mile delivery. Each will have a range of up to 150 miles on a charge.
Over the summer, Scaringe fast-tracked testing on the R1T pickup to clear the decks for accelerated van production in the fall. In September, the company’s efforts refocused on building what is known internally as the Rivian Prime Van. The pickup is being produced in steady but modest numbers, according to people familiar with the plan.
The pickup has also faced multiple delays since the global coronavirus pandemic hit, most recently attributed to a global computer chip shortage. Rivian has promised each buyer a human point of contact, dubbed an “ambassador,” to set expectations before the vehicle is delivered. But to date that PR army has had little positive news to report.
Ross Gale, a car collector and business owner in New Jersey, ordered a launch green R1T pickup last November. Lately, he says, despite his excitement when he first placed the order, he’s been frustrated by the lack of communication from the company on when he can expect to receive his vehicle.
Once delivered, he plans to use the truck as his daily driver and to haul cars from his collection to auto shows. “I 100% believe in the product, having never seen one, having never touched one,” Gale says. “But I am annoyed with the failure to meet promises. I mean, just be honest. Tell us what you’re doing.”
Meanwhile, Rivian’s contractual requirements for Amazon may simply be an opening bid. Bezos, as he looks toward future orders, has set up a kind of bake-off (as he is known to do). In addition to Rivian, Amazon currently buys vans from Ford, Stellantis and Daimler, all companies that are quickly flipping the switch on electric models.
“You can safely assume 100,000 vans is not really the objective,” one source familiar with the deal says. “If Amazon really wants to change over their fleet — because how else are they going to become carbon neutral — then you can imagine the size of the order and how big it will be.”
The deal between the two companies is stacked in Amazon’s favor. Rivian’s Oct. 1 filing details that Amazon’s logistics unit is not bound to buy any electric delivery vehicles from Rivian — and that it can still work with any other potential automotive partners it chooses.
Quantifying how much of a boost the Amazon deal will be to Rivian is tricky, as the specifics have never been disclosed. The unknown price of each van is just one part of the equation. The agreement between the two companies also includes provisions for recurring revenue for fleet management, such as software updates and running diagnostics, people familiar with the matter said.
PitchBook analysts forecast the total Amazon order could bring more than $4.5 billion to Rivian and, more importantly, additional commercial customers. “These orders are a validating signal for investors and set Rivian up well to supply electric delivery vans to other logistics companies,” said Asad Hussain, Pitchbook’s senior mobility analyst. “In the same way investors look to Tesla for the future of automotive, many investors look to Amazon for the future of logistics.”
Rivian will try to simultaneously launch three all-new electric vehicles. “Moving into the production on multiple fronts is a challenge for any automaker, let alone one that has never scaled up a single model before,” says BloombergNEF analyst Corey Cantor.
Sometime in the next few weeks, Rivian’s first customer will get a truck, the ambassadors will start booking delivery dates and Instagram will fill up with the 5,000-pound version of an iPhone unboxing video. Still, the wait for most customers will be long. Scaringe told Bloomberg in November that it would take two years to catch up on its order book.
Amazon currently is testing a handful of pre-production vans in cities across the U.S. And Bezos is no longer at the helm. He stepped down from the CEO’s perch in July and has been devoting time to his rocket company Blue Origin. Mere minutes before blasting himself into space in July, with much of the world watching, Bezos drove to the launch pad in a Rivian SUV. After touching back down to earth, his capsule was swarmed by vehicles — all Rivian pickups and SUVs, each of them shiny and dusty.
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