Like many high-growth stocks, Rivian Automotive has plummeted at the start of 2024. The electric vehicle (EV) maker's share price is down more than 30% to around its lowest level since November.
It's still early in Rivian's production ramp-up, and the company is still burning through cash. But there is also a good reason for investors looking to speculate on the eventual winners in the EV sector to take advantage of the recent stock swoon.
A better EV approach
Rivian took an unusual approach among EV start-up companies. Rather than directly take on the industry behemoth Tesla in its initial stage of production and sales, Rivian offers a differentiated slate of products. While consumers have taken a liking to its pickup truck and its SUV, Rivian also locked in a large order from early investor Amazon for commercial electric delivery vans.
Now that move looks like it might be paying off in a much bigger way soon. That's because Rivian and Amazon ended their exclusivity agreement, and Rivian can now sell electric delivery vans to other customers, too.
Enormous potential opportunity
The market for electric commercial delivery vans is likely to grow. Overall parcel deliveries should increase just based on the continued gains expected from e-commerce sales. By 2027, online sales' share of the total retail sales market is expected to more than triple from where it stood in 2015.
Continued gains in online sales should mean demand for delivery vans remains strong.
Most importantly for Rivian is that the leading parcel delivery companies have committed to shifting their new van purchases to electric models. Amazon already has 10,000 Rivian vans in service. It expects to take delivery of the rest of its full initial order of 100,000 units by 2030.
It certainly makes sense that other delivery companies will choose to expand their fleets with EVs that can make last-mile deliveries during the day and recharge overnight.
Rivian's hidden gem
In 2020, United Parcel Service ordered 10,000 electric delivery vans from Arrival after investing in the EV start-up. But Arrival has struggled both operationally and financially. Concerns have led the delivery giant to consider other sources for new electric vans. That creates a new opportunity for Rivian. UPS already has a total of about 125,000 package cars, vans, and other delivery vehicles, including over 15,000 alternative fuel and advanced technology vehicles.
DHL Group hopes to achieve net-zero emissions from its logistics operations by 2050. It aims to achieve that goal partly by electrifying 60% of its first- and last-mile delivery vehicles. That will result in nearly 28,000 EVs in operation for pickup and delivery by 2030.
A spokesperson for FedEx says that company is taking a "phased approach to electrifying its pickup and delivery fleet by 2040." FedEx currently owns tens of thousands of pickup and delivery vehicles globally. It already has over 6,000 alternative fuel vehicles in service. It has said it plans for half of its new delivery vehicle purchases to be electric by 2025, and for 100% of them to be electric by 2039.
Image source: Rivian Automotive.
One of the largest suppliers of commercial cargo vans is Ford, with its Transit cargo van line. They carry a manufacturer's suggested retail price of between $45,000 and $50,000. We don't know what Rivian is currently charging Amazon for its vans, but can estimate Rivian's potential market using that pricing as a baseline.
Including the 90,000 vans still due to Amazon and knowing there will be tens of thousands more potentially being ordered by other delivery companies, Rivian could have a $10 billion revenue opportunity in vans alone by the end of this decade. It's not just delivery companies either. Rivian and AT&T announced a partnership last month. The telecom company plans to begin adding Rivian vans to its fleet early this year. Consider that Rivian's market cap was recently less than $15 billion. The van is just one of Rivian's products, but it could be quite the hidden gem for the company and its shareholders in the coming years.
