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26 September 2019

Would your boss order 100k cars from a nobody? Amazon just did …

Amazon announced its Climate Pledge, and part of that includes purchasing an entire fleet of delivery vehicles from a company that almost nobody will have heard of. Rivian, an EV specialist that made waves with a pickup truck design and an investment from Ford and Amazon, is set to deliver 100,000 electric vans by 2030, with the first 10,000 to be delivered by 2022.

The financial community gave Tesla a hell of a time when it was missing production targets, but at least it was actually making the Model 3 at the time. Rivian had better have a very mature design ready to roll, as well as the manufacturing facilities to put it into production, as we have just three months of 2019 left.

For some context, Tesla sold 63,000 vehicles in Q1, and expects to sell around 360,000 to 400,000 in 2019. Globally, some 86mn cars were sold in 2018, and around 26.3mn commercial vehicles were sold. So, Rivian’s entire order is a tiny fraction of total commercial or car sales, and ‘only’ a quarter of Tesla’s annual output.

But, it is still a very much unproven startup, and no matter how ambitious it is, there are going to be major teething problems that need to be stamped out. Tesla was founded in 2003 and only released the Model S in 2012. The Model 3, the mass market version, was introduced in 2017, some 14 years after the company was founded.

Rivian was founded in 2009, and has raised $1.8bn in funding to date. Amazon pitched in $700mn back in February, with Ford chipping in another $500mn in April, and Cox Automotive adding $250mn in September.

Based in Plymouth, Michigan, Rivian has a long way to go to reach Tesla’s level of funding, which has ballooned post-IPO. Up to its Series F round, Tesla had raised around $783mn, but since the 2010 listing, stocks and debt have raised around $18bn. It has only just started turning a profit.

In terms of preparedness, Rivian bought a former Mitsubishi Motors plant in Normal, Illinois, for $16mn, and plans to use this as its primary manufacturing facility. It has agreements with Normal to invest $40mn in the plant over five years, and also got $49.5mn in tax rebates from Illinois, on the condition of investing $175mn into the facility by 2024.

In 2018, Rivian finally showed off actual physical products, at the LA Auto Show, where the R1T pickup truck and the R1S SUV were unveiled, and scheduled for production in 2020, with a promise that the next generation of these cars would be fully autonomous. With over a thousand staff, it’s going to be all hands-on deck to meet the first delivery data for Amazon in 2021.

It’s not clear if this is a complete pivot for Rivian. It had always seemed focused on the passenger vehicle market, offering high-tech driver-aids such as automated trailer pickup as well as class-leading speed and performance, but now that it is so beholden to Amazon, commercial designs could take precedence.

For some Amazon context, FedEx has a global fleet of 85,000 motorized vehicles, and UPS has 123,000 – 10,000 of which are running on alternative fuels. It’s not clear how many vehicles Amazon’s logistics wing uses, but it’s a substantial amount. And now, if Amazon can set a trend, all similar fleet-scale purchases could now be fully electrified.

This would be an immense step forward for EVs, as that level of manufacturing and operational experience would be reinvested back into the passenger car problem – where purchasing decisions are more emotional rather than a commercial director’s preoccupation with dollar-amounts rather than the feel of an engine or the cultural nostalgia for internal combustion.

What’s more, Amazon can use this decision to embarrass its rivals. If it can point to solid data about the amount of air pollution its fleet has provided compared to the filthy, horribly polluting vans of its rivals (or the local postal service) then it has something of a get-out-of-jail-free card next time a politician raises questions about working conditions or tax contributions.

China holds something like 98% of the market share for electric buses currently, and those fleets are major opportunities for commercial EVs too, as global penetration of EV buses is still so low.

The other element of Amazon’s Climate Pledge is a target of having 80% of its 2024 energy usage come from renewables, building to 100% by 2050. To date, Amazon has brokered 1.3 GW of renewable capacity, as well as 98 MW of rooftop solar on its global facilities. Some $100mn has been allocated to reforestation via the Right Now Climate Fund, and with the EV fleet, Amazon believes it can mitigate 4mn tons of carbon emissions by 2030. The ultimate goal is to become ‘net-zero’ by 2040, some 10 years ahead of the Paris Agreement deadline.

Amazon CEO Jeff Bezos seems quite evangelical about it. “We’re done being in the middle of the herd on this issue—we’ve decided to use our size and scale to make a difference. If a company with as much physical infrastructure as Amazon—which delivers more than 10 billion items a year—can meet the Paris Agreement 10 years early, then any company can. I’ve been talking with other CEOs of global companies, and I’m finding a lot of interest in joining the pledge. Large companies signing The Climate Pledge will send an important signal to the market that it’s time to invest in the products and services the signatories will need to meet their commitments.”