Breakups are tough—even amicable ones. But a reappraisal usually uncovers issues that inform the future. So it’s worth thinking about the relationship between century-old Ford Motor Company and the recently released electric vehicle (EV) company Rivian Automotive Inc.
It was meant to work on paper. A large, traditional manufacturer has tied up with a new startup that boasts of all the right technology and specifications, to create an electric version of an American favorite SUV. They seemed like the perfect couple. This month, however, the companies abandoned plans to jointly develop an EV.
Shame. Investors loved it. For Ford, it was a bold bet on the future at a time when the rise of EV-maker Tesla Inc. They bet big in various futuristic technologies or forged partnerships that tie them to the next generation of vehicles and the technology that will power them. For Rivian, a hot startup with ideas all around sustainability and green vehicles, a partnership with a manufacturing company will ensure that production issues don’t hinder its rise.
Rivian went public on November 10 as one of its biggest offerings ever. Ford’s stake is valued at around $12 billion. Exactly 10 days later, they jointly stopped making an electric vehicle — mutually, they say. Ford still holds its 12%. It seems that both companies are fine in theory. A subsidiary of the Detroit giant has a supply agreement with the EV-maker.
But building a car was the core of the relationship. So what about the lofty goals that were set at the time of the initial investment that caused it to break? In April 2019, following the announcement, when Ford’s then-CEO James Hackett was asked by an analyst his company thought it would receive the “$1 billion to $2 billion needed to bring a new vehicle to market” from their partnership. How much can you save? He added: “We see significant opportunities” in terms of cost and momentum of the market, noting that the latter was important.
He went on to say that the skateboard platform, the Rivian’s chassis that packages the system, motor, battery and other controls together, had a lot of potential that Ford could take advantage of. Rivian founder RJ Scaring noted that as important as its 100,000 electric vans-amazon.com relationship, “who has the manufacturing expertise, supply chain expertise, and ability to actually use our skateboards.” They didn’t go into details, but investors liked the idea.
Two years later, the reality couldn’t be further from those optimistic statements. Ford is coming out with its own vehicles, as is the Rivian, while it scouts for manufacturing plants in Georgia.
Perhaps they could not, and never could, see face-to-face on technology and construction—their foundations are different. Within a year of the tie-up, in early April 2020, Ford’s luxury brand Lincoln Motors scrapped plans to build an all-new EV on Rivian’s platform. However, it maintained that the partnership was still strong and stated that they were working on “an alternative vehicle”.
In a rush to pair up and give investors some hope in a cloak-and-dagger string of events, Ford and Rivian’s decision, in retrospect, seems like it was just aesthetically pleasing. By the time Ford poured half a million dollars, the Rivian had already raised more than $1.5 billion and was valued at close to $7 billion.
In a way, this is a sign of how both companies underestimated themselves. Maybe we’re still in for all kinds of great electric trucks and SUVs? Ford’s current CEO Jim Farley said this month that his firm plans to double its EV production capacity. But the reality is that we need to start seeing more of them first. Beyond that, there has to be more discussion and disclosure about what didn’t work for both sides—because it seemed like it should have been straightforward. It would do lively EV conversation a huge favor.
Many EV makers are contracting out production and have often struggled to get it up and running (including Tesla in its early days). What issues are they running? Is this a techno-hardware or software-issue or just philosophical?
What appears to be a good synergistic partnership or alliance may require more in-depth consideration. For investors, it’s a warning, especially given the flurry of going electric and a slew of new technologies in the EV value chain.
A former Ford executive once told Rivians Scaringe, “Just because you’re engaged to someone doesn’t mean you need to marry them.” this is true. You don’t have. And this is something to keep in mind.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia
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