How can Rivian not only survive but thrive before R2 hits the roads

In the long term Rivian (RIVN -4.00%) investors may face some trepidation. The stock is down 85% since its IPO in late 2021. But while the electric vehicle (EV) industry is progressing with slower-than-anticipated growth, it continues to move quickly with cost cuts, vehicle launches and improved battery technology, among other developments.

The question facing Rivian investors is how does the company manage to bridge the gap between now and what seems like an eternity before Rivian’s R2 SUV launches its next phase of growth? The answer for investors is hopefully something many have forgotten about.

Remember electric delivery vans?

With all the developments surrounding Rivian and its path to R2, R3 and R3X, investors could be forgiven for forgetting all about the company’s first big win: its deal with Amazon to deliver 100,000 electric delivery vans (EDVs) by 2030. In the past nine months, Amazon has grown its US EDV fleet by 50% to 15,000 delivery vans. But that’s not the current selling point for Rivian investors.

The current selling point is that the deal with Amazon is no longer exclusive, which is not new news. However, since the agreement became non-exclusive, the only major customer that has signed on to start accepting shipments of EDVs from Rivian has been AT&T. There was no flood of major customers knocking on Rivian’s door when the deal went non-exclusive. So what’s the deal?

Management noted a few quarters ago that the process for this does not happen overnight. Companies need to assess the viability of an electrified fleet, saving costs and improving efficiency by collecting data and reducing maintenance costs. It also needs to test whether it will have enough charging infrastructure and other capabilities to make the move a successful return on investment.

These pilot programs take time, and management noted that it will likely take a year of testing the company before Rivian begins closing larger deals similar to the one with Amazon. Investors could hopefully see some of these deals close sometime in 2025, the seemingly uneventful year between the R1 refresh completed earlier this summer and the R2 launch in the first half of 2026.

Rivian already has 300 EDVs on the road in Germany, which could help spur additional overseas orders in addition to its primary US market.

Better economy

Investors are also likely to take advantage of Rivian’s growth to meet Amazon’s original and ambitious order. Years ago, Amazon committed to buying 100,000 EDVs by 2030. Rivian needed a year to ship the first 5,000 units, followed by four months to ship another 5,000 units, and then another nine months to deliver the next 5,000 units. Management still says it is on track to meet its commitment and plans to ramp up larger fleet deployments, such as Amazon’s, ahead of smaller scale deployments starting in 2025.

Speaking of increased production and improved efficiency, the retooling of the Rivian factory generated a 35% reduction in the cost of materials for the trucks and pushed the assembly rate on the production line by about 30%. Rivian said earlier this summer that total cost for all lines was dramatically improved by eliminating more than 100 steps in the battery manufacturing process, 52 pieces of body shop equipment and more than 500 parts in the design of its vehicles.

As Rivian continues to improve its manufacturing efficiency, reduce costs and introduce more customers to its EDVs, it could ignite the spark the company and investors need in 2025.