As a faithful reader of auto enthusiast blogs and magazines, I was amused Tuesday to read speculation that GM and Tesla would be collaborating on an electric pickup truck. That story seemed to dissipate in the afternoon, though, as a much more reliable source, Reuters, reported that Amazon and GM were considering an investment in battery-electric vehicle (BEV) startup Rivian, which would value the company between $1 billion and $2 billion. Obviously that’s a wide valuation range and the amount of the investment itself was not disclosed even as the unnamed sources in the Reuters story noted that the deal is far from complete.
If Rivian founder R.J. Scaringe has indeed turned his company into a unicorn, though, the money that would underlie that investment would be coming from incredibly well capitalized companies and going away from a company that is chronically undercapitalized, Tesla.
I have written this before in my Forbes columns about NIO, but the pool of investment for any emerging technology is limited. The $1.65 billion that NIO has raised in the past 6 months through its IPO and subsequent offering of convertible notes is money that Elon Musk cannot access. In 26 years of following autos I have never encountered an executive as skilled at raising capital as Musk is, but capital is flowing away from Tesla. This at a time when, if Tesla shares fail to appreciate by more than 11% in the 11 trading days remaining in February, Tesla will be on the hook for a $920 million payment to settle its 0.25% convertible notes.
Rivian’s R1T was one of the breakout hits of the Los Angeles Auto Show, and Rivian is, in Tesla fashion, taking $1,000 customer deposits for the electrified pickup–there will also be an SUV on the same platform–with delivery pegged for late 2020. So, it’s not that surprising that Scaringe and co. would be raising money now, but what did raise my eyebrows was the identity of the two rumored investors.
GM has been a stalwart in BEV production, with the Volt introduced in November 2010 and the Bolt introduced in December 2016. What GM has yet to master, though, is how to market those products to consumers. You would never know it from the reams of sunshine emanating from GM’s PR department, but the Bolt has been a flop in the North American marketplace. In fact, the Bolt has been consistently outsold by the Volt, which is scheduled for discontinuation in March and, unlike the Bolt, actually carries a gasoline engine.
GM hit the 200,000 unit sales threshold in its eighth year of selling BEVs, and while that pace is laughably slow when compared to Tesla’s Model 3 onslaught, it is also enough to ignite the sunset provision in regard to federal tax credits. So, beginning in April, the Bolt will cost $3,750 more for a U.S. consumer that was largely ignoring it, anyway.
What GM needs is a BEV consumers actually want to buy, and pickup trucks and SUVs have been taking share from sedans in the U.S. auto market consistently from the past 25 years. That’s where Rivian’s R1T and R1S would help the General, whose Cruise division is going to put the extraordinarily-complex and hugely exciting autonomous vehicle (AV) technology onto a vehicle that is just another unappealing econobox. By owning a stake in Rivian GM would have a pickup/SUV template to benchmark, and I wouldn’t be surprised if a cross-marketing deal followed an equity investment.
Autonomous vehicle technology is not only exciting to me, clearly, and that is where Amazon comes in. Published reports last week indicated that Amazon had invested in a funding round for Aurora, an AV startup led by executives who left other AV pioneers including Tesla, Alphabet’s Waymo and Uber. Like most automakers Rivian has been working on AV technology, and while the depth of their knowledge has yet to be revealed publicly, it is a certainty that AVs will be built on BEV platforms. The sheer magnitude of the power draw required by the complex and redundant systems needed for self-driving require an electric architecture driven by lithium-ion batteries or hydrogen fuel cells.
If these rumored investments come to fruition Rivian would be a true competitor to Tesla for personnel and capital, even before the R1T hits the market. It is abundantly clear that Elon Musk fears no man nor government entity, but having Jeff Bezos nipping at his heels in both Tesla’s core technologies–AVs and BEVs–could make life uncomfortable for him.
Musk and soon-to-retire CFO Deepak Ahuja bragged of Tesla’s 5.7% operating margin in the fourth quarter, but that profit margin paled in comparison to the 10% operating margin produced by GM’s North American Operations and its pickup/SUV-heavy lineup in the same period. So, GM’s financial might and Amazon’s tech prowess would make Rivian a formidable competitor for Tesla in North America, just as Tencent’s significant sponsorship of NIO gives that company the financial wherewithal to dominate Tesla in China.
So, once again, it’s Elon versus the world. As legendary as Musk has become in tech circles, I would advise you not to discount the chances of the world.