Electric vehicle (EV) maker Rivian (RIVN -3.62%) said recently that it is partnering with Mercedes-Benz Group to produce large electric vans in Europe.
The joint venture between the two automakers is a traditional move in the auto industry (such deals help automakers share costs), but it's also a significant move for Rivian that comes at a time when the EV maker is trying to find its footing in the rapidly expanding EV market.
A Rivian van on the assembly line. Image source: Rivian.
A cost-cutting EV partnership
Rivian and Mercedes will share a factory in Europe, an unspecified plant that Mercedes already owns, to build two large electric vans. One will be based on Mercedes' electric van architecture (called VAN.EA) and the other will be based on Rivian's second-generation electric van, called the Rivian Light Van (RLV) platform.
The idea is for Mercedes and Rivian to share some of the costs of electric van production.
The companies will "leverage shared investments, shared costs and will pursue operational synergies to rapidly scale electric van production," Rivian said in a press release.
Cutting costs is especially important for Rivian right now because the company has suffered from rising material costs amid supply chain shortages and higher battery costs. These expenses and other spending have put significant pressure on Rivian's bottom line, and the company posted a net loss of $1.7 billion in the second quarter (reported on Aug. 11), compared to a loss of $580 million a year ago.
The company has recently lowered its production goals, leaving it growing more slowly than it would like.
But despite the recent setbacks, the new partnership with Mercedes could help Rivian carve out a niche in the electric van market.
Rivian's bet on large electric vans
Rivian has made large electric vans part of its broader EV plans. The company is very committed to producing its other EVs -- its R1T pickup truck and R1S SUV -- and it has a contract to deliver 100,000 electric vans to Amazon by 2030.
It didn't say if working with Mercedes will help achieve that goal, but the partnership does add to Rivian's ability to make more electric vans more cheaply.
This could end up being important for Rivian as the company focuses attention on becoming a key player in the fast-growing electric van market.
This year, the global electric van market will be worth just $2.7 billion, but it's expected to grow into an estimated $22 billion market by 2027.
Ford currently makes a best-selling large van for the European market, and said recently that it will start selling an electric version of the van, called the E-Transit Custom, next year.
But if Rivian can use its new partnership with Mercedes to lower its production costs and improve some of its manufacturing, then it could give Rivian a chance to grab a piece of the electric van market in Europe.
Keep an eye on this space
The partnership won't result in new production for at least a few more years, according to the companies. Investors should know that this prolonged timeline could hurt Rivian as competition in this space heats up.
For example, Stellantis already has commercial van in Europe through its Fiat brand and is expected to launch a Ram electric van in the region sometime next year.
With the electric van market poised to become a significant subsegment of the broader EV market, it's smart for Rivian to focus some of its attention on this space. But time will tell if Rivian's new partnership will be enough to help it makes gains in the European electric van market.
