Ford's(F) $500 million investment in electric truck maker Rivian became a possibility shortly after the start-up's talks with Detroit rival General Motors(GM) broke down about eight weeks ago, according to someone familiar with the discussions.
It was widely speculated, and reported, that GM was looking at Rivian. In the end, GM wanted too much — exclusive rights to the start-up's technology, said the person, who declined to be identified because the talks were private.
Ford's opening came after GM, which declined to comment, refused to budge. Rivian CEO RJ Scaringe already had a personal friendship with one of Ford's board members, a classmate from the Massachusetts Institute of Technology. And Ford made him a deal that allows Rivian to move ahead with plans to develop its own brand and dealer network and potentially sign up other automotive partners. No such deals are currently planned, Scaringe told reporters on a conference call Wednesday.
The investment in Rivian is "consistent" with Ford's own electrification program, the 116-year-old automaker's CEO, Jim Hackett, said on the call. Ford last year announced it would invest $11 billion to develop battery-based vehicles, including hybrids, plug-ins and pure battery-electric models. The Rivian investment will come on top of that previous figure.
"I think Ford sees multiple areas of potential benefit," said Stephanie Brinley, principal automotive analyst at IHS Markit.
At the Los Angeles International Auto Show in November, Rivian unveiled two battery-electric vehicles, or BEVs, the R1T pickup and the R1S sport utility vehicle. Both ride on a flexible, skateboard-like platform in which batteries, motors and other key components are mounted below the floorboard.
The layout has a number of advantages. Not only does it lower a vehicle's center of gravity — enhancing handling — but it frees up space normally devoted to an engine compartment for adding passenger and cargo space. Both the R1T and R1S, for example, have "frunks," or front-mounted trunks.
The first generation of Ford's electrified vehicles, which includes full battery power and hybrids, sacrificed passenger and cargo space to make room for batteries and other components. That is a problem that the automaker aims to address as it gets ready to roll out a second generation of products that also will deliver more than 200 miles in range, or at least double what products like the current Ford Focus EV can manage between charges.
"Ford is going to use Rivian's flexible skateboard platform to develop an all-new, next-generation battery-electric vehicle," Hackett told reporters.
But neither he nor other Ford and Rivian officials would discuss specifically what sort of vehicle they are working on. They noted that Ford is already well along in the development of a high-performance electric SUV that is set to debut next year, as well as an all-electric version of the popular Ford F-150 pickup.
The Rivian platform will be used for a different product line, said Joe Hinrichs, Ford's president of automotive operations. Industry analysts say the Rivian platform could eventually be used for other electric vehicles at Ford to help maximize economies of scale. But there is at least one obstacle that could limit future applications, said Brinley, of IHS Markit, the potential capacity of Rivian's assembly plant.
The start-up last year acquired the old Mitsubishi assembly plant in Normal, Illinois. The facility has a production capacity of about 250,000 vehicles — or platforms — annually, according to Scaringe. Rivian itself is hoping to sell between 70,000 and 80,000 of its R1T and R1S models annually, and it is working up additional products that could eat up even more of that capacity.
Rivian is also developing vehicles for Amazon(AMZN). It announced a separate, $700 million investment deal in February with a consortium led by the online retailer. Specific plans have not been revealed, but the electric car maker is believed to be working on some sort of delivery truck for Amazon, said Sam Abuelsamid, an analyst at Navigant Research. And they could use autonomous driving technology developed by two self-driving start-ups Amazon has also invested in.
Rivian will use its Normal plant to produce the platforms Ford plans to use. They will then be shipped to a Ford assembly plant for the rest of the assembly process — though the Detroit automaker did not offer further details. But the number of skateboard vehicle frames available to Ford could be limited unless Rivian expands capacity or lets Ford produce them elsewhere, analysts said.
Even if Ford only can produce a limited number of vehicles using the Rivian technology, the deal could prove to be a sound investment, Brinley said. Both companies plan to share intellectual property, and Rivian could help Ford learn how to speed up its own EV developments. In turn, Ford could teach its new partner a lot about mass production.
The deal could also pay off handsomely if Rivian becomes a success, Ford standing to share in some of its future profits. Then, said Brinley, Ford also could wind up making a handsome return on its investment sometime down the road if Rivian were to go public. Both Daimler and Toyota(7203.T-JP) generated significant profits on their early investments in Tesla(TSLA), she noted. And General Motors stands to be well rewarded if it eventually sells off its stake in ride-hailing service Lyft, which staged its own IPO in March.
Rivian CEO Scaringe also said he could be interested in acquiring some of the self-driving vehicle technology being developed by Ford's artificial intelligence subsidiary Argo AI at some later date.
The deal does have a potential downside, however. Rivian has yet to actually sell any vehicles using its technology. And the market for plug-based vehicles remains small. BEVs, in particular, accounted for barely 1% of the U.S. market in 2018. But demand doubled in the U.S. and is growing even faster in China, now the world's largest market for zero-emissions vehicles.
The back-to-back Ford and Amazon investments, collectively totaling $1.2 billion, offer "a fair amount of validation" that Rivian is on the right path, said the start-up's senior executive, asking not to be identified by name.
As for CEO Hackett, he said he is confident that Ford's investment in Rivian is the right step to take "as we move toward a sustainable future."