Amazon (AMZN) – Get Amazon.com, Inc. Reports. and Ford (F) – Get Ford Motor Company Report operates in two different sectors.
The first is online commerce, streaming, sports and most importantly, cloud computing, Microsoft’s El Dorado (MSFT) – Get Microsoft Corporation Report and Google (GOOGLI) – Get Alphabet Inc’s Class A Report. also fight for.
As for Ford, after decades of focusing on making vehicles with internal combustion engines, Dearborn has focused on turning itself into an electric vehicle manufacturer.
But if one doesn’t make cars and the other isn’t an ecommerce giant, they have the same priorities: Both are betting on clean vehicles.
Amazon, forever building its logistics network, wants to make sure it stays ahead of the race for fast product delivery. Ford, for its part, wants to ensure that the EV gap with Tesla (TSLA) – Get Tesla Inc . Report not widen to the point that it cannot be bridged.
It is this concern that has somewhat motivated their equity investment in Rivian (RIVN) – Get Rivian Automotive, Inc. Class A Reports.manufacturer of electric pickups, vans and SUVs, which is present as one of Tesla’s main rivals.
This investment paid off initially. Rivian Automotive’s IPO last November brought about $12 billion in profit for Amazon, for example.
Amazon owned 17.74% of Rivian as of Dec. 31 and Ford had 11.42%, according to documents filed with the Securities and Exchange Commission.
Rivian Faces Many Obstacles
However, Rivian’s horizon has darkened somewhat due to various problems related to its production activities.
Like the rest of the automotive industry, Rivian is not able to produce as many cars as its capacity allows.
The industry points to a number of factors, but in particular the automated supply chain remains a mess. Automakers have run out of spare parts, especially the semiconductors that have become an integral part of vehicles.
Rivian and its rivals are also facing rising raw material prices, increasing their costs.
Finally, budding vehicle manufacturers are experiencing the classic maturity problem associated with rising production levels. “Our initial deliveries of the R1T and R1S were delayed, and our production increase took longer than originally anticipated for a number of reasons,” Rivian said in early April.
“The tiered impact of the COVID-19 pandemic, and more recently the conflict in Ukraine, has affected our business and operations from facility construction to equipment installation to vehicle component supply.”
Rivian was founded in 2009 and went public in 2021. From a facility in Normal, Illinois, the automaker produces three vehicles: the R1T electric pickup, the R1S electric SUV, and the RCV electric commercial van.
Rivian plans to open a second production site, east of Atlanta, in 2024. And plans to produce 400,000 vehicles per year, compared to 1,015 units in 2021.
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In early March, the company had said that the Normal plant had the capacity to produce 50,000 vehicles by 2022, but due to supply chain difficulties, Rivian will only produce half of that number – 25,000.
Rivian Is a Loss Maker for Amazon and Ford
These operational difficulties are reflected in the stock market, as Rivian’s shares have slumped 69% this year. Market capitalization in Rivian has shrunk by $63.4 billion, to $28.2 billion, in the four-month period. It’s no surprise, then, that shares of Amazon and Ford also took a hit.
Another point: Companies in their income statements must update the fair value of the securities they hold. These securities are typically valued by market capitalization, using the value on the last trading day of the quarter.
Rivian shares lost 52% – more than half – of their value from December 31 to March 31.
“We reported an overall net loss of $3.8 billion in the first quarter,” Brian Olsavsky, Amazon’s chief financial officer, told analysts on April 29 during a first-quarter earnings call.
“While we primarily focus our comments on operating income, I will point out that this net loss includes a pre-tax valuation loss of $7.6 billion included in the non-operating costs of our common stock investment in Rivian Automotive.”
The decline is in stark contrast to the fourth quarter of 2021, when Amazon’s stake in Rivian gave the e-commerce giant a $12 billion profit.
Ford, for its part, posted a net loss of $3.1 billion from January to March. In the first three months of 2021, the maker of the wildly popular F-150 pickup has posted a net profit of $2.3 billion.
The veteran automaker said its losses stemmed from elements outside of its operations.
“The $3.1 billion net loss was primarily due to a $5.4 billion mark-to-market loss on the company’s investment in Rivian. Adjusted profit before interest and taxes was $2.3 billion,” Ford said.
Ford’s stake in Rivian was worth $5.1 billion as of March 31, down more than half from $10.6 billion at the end of 2021, the company said.
Neither Amazon nor Ford would say whether they intend to reduce their stake in Rivian. Asked about it, Jim Farley, CEO of Ford, declined to comment.
“As we approach, I think, the 180 day expiration for your investment in Rivian, what do you think about the options available to you in terms of this investment going forward?” JP Morgan analyst Ryan Brinkman asked Farley during an earnings call.
“Would you perhaps be more inclined to hold on to some or all of the stock given the recent decline in Rivian shares?”
“Unfortunately at this point, we will not be commenting on Rivian,” Farley replied.