The sky-high and unsustainable electric vehicle (EV) bubble of 2021 is long gone, but interest in many of these start-ups is making a comeback. Rivian (RIVN 6.10%) is one of them. The maker of electric pickup trucks still garners lots of attention, even though it's far from turning any semblance of a profit.
But there's a far safer way to invest in Rivian: Amazon (AMZN 3.43%). As of the end of the first quarter of 2023, the e-commerce and cloud giant still owned 17% of Rivian's shares outstanding (valued at about $2.36 billion as of this writing). I believe the vast majority of investors would be much better off owning Amazon than Rivian. Here's why.
Amazon's really bad bet (so far) on EVs?
Amazon the EV investor dates back to 2019 when it pledged to buy 100,000 electric delivery vans from Rivian through the end of this decade. By the time Rivian had its initial public offering (IPO) in 2021, it revealed that Amazon had become Rivian's largest shareholder as a result of this partnership.
Amazon has skyrocketed into the No. 3 position in delivery logistics in the U.S., passing FedEx (NYSE: FDX) and now trailing just UPS (NYSE: UPS) and the U.S. Postal Service. More electric Rivian vans could mean not just cutting carbon emissions, but also getting more operationally efficient in Amazon's sprawling delivery empire.
Early in 2023, it was reported that Amazon had only more than 3,000 Rivian vans in operation.
Based on Rivian's price action since going public, it would indeed seem that it was a poor investment by Amazon. And it's not getting much better, either.
Even as Rivian's revenue ramps up, net losses and free cash flow are deep in the red -- a situation that Tesla's (NASDAQ: TSLA) Elon Musk might dub "production hell" as Rivian burns through cash to get its manufacturing ramped up.
Data by YCharts. TTM = trailing 12 months.
But perhaps it wasn't such a bad investment. Remember, Amazon invested in Rivian before the IPO and subsequent absurd run-up in the start-up's valuation. Indeed, Amazon reported a net gain of $11.8 billion on Rivian in 2021 -- plus total net gains of $2.4 billion in 2020, with an undisclosed (but majority) amount of this also attributable to the Rivian investment.
In 2022, Amazon reported a $12.7 billion net loss on Rivian stock, so it's presumably still sitting on a small unrealized gain or is close to breakeven.
All the reward, but lower risk?
At this juncture, there is still significant doubt about how successful Rivian will eventually be. The company is in a sort of race against the clock -- and not for fast-lap bragging rights at the track.
Its cash and short-term investment stockpile has been steadily reduced since the IPO and was down to $11.2 billion at the end of March. That sounds like a lot of money, but Rivian was still burning through over $6 billion on an annualized basis in the first quarter.
For investors who buy Rivian stock now, there could be tremendous upside if the company turns the corner onto Profitability Street. But it still has a long way to go, and is a high-risk stock in the meantime.
I'll reiterate here my belief that most individual investors should just buy Amazon stock instead. If Rivian goes belly-up, Amazon is out a couple of billion dollars from its initial investment. No biggie: Amazon has tens of billions at its disposal -- more than $64 billion as of the end of March, to be specific.
Amazon's overall operation (e-commerce and the AWS cloud segment) is also profitable, so its coffers are constantly being replenished. That makes it a far safer stock to own.
But what if Rivian pulls off a remarkable stunt and succeeds mightily? Amazon shareholders will get a huge lift via that equity position in the EV start-up, since it purchased Rivian long before the IPO at a much more reasonable valuation. Plus, it would be getting a sort of return on investment simply from buying those EV delivery vans from the company it already owns stock in.
Long story short, if you want in on Rivian, consider buying Amazon instead -- or a great semiconductor company that supplies the EV industry, like Onsemi (ON 2.53%) or NXP Semiconductors (NXPI 1.94%).
