A fierce battle is raging between traditional carmakers and upstarts like Tesla to get the early lead in the electric vehicle race. Ford Motor Co. may hold the trump card though: a 12% stake in electric vehicle maker and Amazon-backed Rivian.
“We’re really excited about Rivian; it’s a great American company,” Ford CEO Jim Farley told CNBC’s Jim Cramer on the first edition of “Cramer’s Investing Club” on Thursday. “You can argue about what it’s worth versus what Ford is worth, but I really like the talent over there and I really like their position of products. They are going after pickup trucks and van owners and we like those kinds of people.”
Cramer asked Farley how Ford (NYSE: F) could change the narrative that Tesla (NASDAQ: TSLA) is top dog in the electric vehicle space.
“The only way we can change that [narrative] is we have to scale our electric business so that we are competitive with them on scale [and] beat them in more profitable segments like pickup trucks and commercial vans,” Farley replied. “And we have to make money on those vehicles.”
That’s when Ford’s 12% equity stake in Rivian (NASDAQ: RIVN) came into play. Valued at roughly $10 billion today, that stake could fund future efforts as Ford looks to remake itself as an electric vehicle automaker.
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“There are going to be lots of opportunities for us for more capital, but if we are going to allocate it, we have to return the cost of capital more to our shareholders,” he said. “It’s too early to tell what we are going to do, Jim, but it gives us a lot of optionality we didn’t have.”
Farley said Ford has stopped accepting reservations for its F-150 Lightning electric pickup, noting that the company has received 200,000 reservations for the vehicle, which is expected to start full production in the middle of 2022. Ford can only build between 70,000 and 80,000 units annually due to battery constraints, he said.
“We had to find batteries and that is … what we are doing,” he said. “As big companies, we are not used to committing to stuff that we don’t have all the answers to. But we think we can do it. In 24 months, we are going to double our capacity for these battery electric vehicles. We’re on our way to doing that. We’ve gotten a lot of incremental commitments out of our Georgia facility and we think we can do that.”
But Ford’s transition to a battery electric vehicle (BEV) maker may hinge on its Rivian equity.
“I’m a racecar driver. Second place is first loser. That’s how I look at business,” Farley said, noting that in the right situation, some of Ford’s stake could be used to fund BEV investments or for acquisitions in the space. “Ford employees deserve the best leadership and our investors are betting on this company. You should expect us as we go battery electric, to really reinvent the brand and we are doing that with F-150 Lightning. You’ve already seen it; now we have to develop a lot more vehicles just that good and build them and do that profitably.”
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Rivian went public on Nov. 10, opening at $106.75, up from the pre-IPO share price of $78. Amazon (NASDAQ: AMZN) is the largest single shareholder in Rivian with a stake valued at nearly $20 billion. The e-tailer has been testing Rivian vans since March in the San Francisco area and has pledged to put 10,000 on the road by 2022 and 100,000 by 2030. The startup is also developing an electric pickup, the R1T, and an electric SUV, the R1S. Both of those vehicles are expected to sell for approximately $80,000. Pricing for the delivery van has not been revealed.
Rivian stock has been trading in the $115 dollar range since late November. Morgan Stanley has come out favorably for the stock, in part because it believes Amazon will up its van order.
“We think the 100K unit order from Amazon (from 2019) is a stale number,” Morgan Stanley wrote in an analyst note. “We think closer to 300K units is more likely through 2025/2026. Rivian is a ‘call option’ on Amazon’s desire to decarbonize its delivery/fulfillment footprint in a highly visible way.”
Morgan Stanley, which is forecasting Rivian to be cash-flow negative until fiscal year 2026, sees a $147 price target for its shares, falling in a range of $94 to $165. That could rise to $200 per share if Rivian is able to achieve sales of 2 million units by 2030, the firm said.
For Ford, the ability of Rivian to deliver, even as a direct competitor, could be the key in its own transition to an electric vehicle maker.
Click for more articles by Brian Straight.
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