In what may be the first real challenge to Tesla’s dominance of the western hemisphere electric vehicle (EV) market, Amazon has invested $700 million in US EV manufacturer Rivian, who focus primarily on the light commercial segment.
According to Adam Jonas, a research analyst at Morgan Stanley, the move may prove to be the "most important auto moment" of 2019.
"It may prove to be the most significant milestone for U.S. autos for all of 2019," wrote Jonas. "We think auto investors should take a moment to contemplate the significance of last week’s Amazon-Rivian investment."
US carmaker General Motors (GM) has also been in talks with Rivian around possible investment, but sources close to the EV manufacturer have naysaid any imminent announcements.
Should GM join Amazon in investing in the startup it would represent "another sign of GM's prescient strategic vision," wrote Jonas wrote in an investor note.
GM has said little regarding its interest in Rivian, neither confirming nor denying its intentions. “We admire Rivian’s contribution to a future of zero emissions and an all-electric future," said the company in a recent media statement.
Why the interest?
The EV startup has a strong focus on the light commercial market, and plans to make both an all-electric pickup truck and an electric SUV, with each purported to have a range of between 250 to 400 miles.
The move from Amazon is significant in that it "significantly de-risks Rivian’s goal of having an all-electric pickup on sale in 2020."
The benefits to Amazon are numerous. "Amazon has a vested interest in managing the marginal cost of its transport and logistics expenses. Dense networks, predictable routes, and start-stop duty cycles are ideal for all-electric vehicle architectures," said Jonas.
"It’s Amazon. Do we really need to elaborate here?"
EV’s are approaching the cost tipping point
As EV battery costs decline, the market is seeing a "wider array of companies and products offering all-electric architectures," said Jonas.
Globally, EV sales are predicted to reach 18 million by 2030, according to Tyson Jominy, managing director of the data and analytics consulting group at JD Power. Sales in China are expected to reach 7.5 million within the same period.
"It's a rapidly expanding number with China leading, followed by Europe, and both are driven by regulations in those countries," noted Jominy.
According to Jominy, US EV sales are anticipated to increase by 100 000 vehicles per year until 2025, resulting in an estimated 700 000 vehicles by that date. Whilst the number seems significant, it only represents 5% of the total anticipated retail vehicle sales.
However, notes Jonas, he expects others such as Ford to ultimately follow GM’s lead and replace hybrid production with all-electric vehicles.
Megafleets, says Jonas are also subject to environmental challenges.
"Vehicle fleets associated with large tech firms may be held to a higher standard of sustainability, including tailpipe emissions and greenhouse gases by an increasing number of large metropolitan areas and states," noted Jonas.
"We expect customer awareness over sustainability and the environmental impact of company’s logistics/transport footprint will only grow over time … pressuring firms to take action."
According to Jonas, many investors consider growing sectors such as ride-sharing, autonomous vehicles and EV’s as positive developments that may support automotive sector share prices, but Amazon are disruptors, "revolutionising a century-old propulsion and business model ecosystem," and potentially threatening both big carmakers’ share of market and share price if they don’t follow suit soon.
Tesla has a challenger
Jonas says "Tesla’s EV dominance" is now being threatened.
"Just when it seemed like Tesla’s lead over the competition in EVs couldn’t be any wider … we have Amazon making a bold move right into U.S.-made EVs," said Jonas. "We view Amazon and Tesla as competitors rather than partners/collaborators in advancing the future of transport."