Amazon and Ford have a common problem

Amazon and Ford have a common problem ...

Get Amazon.com, Inc. Reportand Ford (F) - Get Ford Motor Company Reportoperate in two different sectors.

The first is in online commerce, streaming, sport, and, above all, cloud computing, an El Dorado that Microsoft (MSFT) - Get Microsoft Corporation Reportand Google (GOOGL) - Get Alphabet Inc. Class A Reportalso battle for.

Dearborn has decided to transform itself into a manufacturer of electric automobiles after decades of focused on manufacturing internal combustion engines.

If the one does not make automobiles, and the other isn''t an e-commerce force, they have a common goal: beide are betting on clean vehicles.

Amazon, which is steadily expanding its logistics network, wants to keep its momentum in the market for fast product delivery. Ford, for its part, wants to ensure that the TSLA gap with Tesla (Get Tesla Inc Reportdoes) will not widen to the point that it is unbridgeable.

These concerns motivated their equity investments in Rivian (RIVN) - Get Rivian Automotive, Inc. Class A Report, the manufacturer of electric truck trucks, vans, and SUVs, which is now considered one of Tesla''s main competitors.

These investments were initially paid off. The Rivian Automotives initial initial IPO in November saw an increase in Amazon revenue of roughly $12 billion.

According to filings with the Securities and Exchange Commission, Amazon owned 17.74 percent of Rivian on December 31. Ford owned 11.42% of shares.

Rivian Faces a Lot of Headwinds

Despite a number of difficulties relating to Rivian''s production, the future has plummeted.

Rivian has been unable to produce the number of automobiles it has to do with the rest of the automobile industry.

The industry cites several factors, but, particularly, auto-supply chains are still cluttered. Automobile manufacturers have gone short of components, especially the semiconductors that have evolved into integral vehicles.

Rivian and rivals are also confronted with rising raw-material prices, which are reducing their costs.

Finally, the upstart vehicle manufacturer is experiencing the usual difficulties of maturation owing to the rising production rates." Our initial deliveries for the R1T and R1S were delayed, and our production ramp is taking longer than originally planned, due to a variety of reasons," Rivian said early April.

"The covid-19 epidemic and, more recently, the Ukraine conflict, have had an impact on our company and operations, from facility design to equipment installation, to vehicle component supply."

Rivian was founded in 2009 and went public in 2021. From ground up in Normal, Ill., the carmaker produces three vehicles: the R1T electric pickup, the R1S electric SUV, and the RCV electric commercial van.

Rivian plans to open a second production facility east of Atlanta in 2024. It intends to construct 400 vehicles per year, comparative to 1,015 units by 2021.

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According to the beginning of March, the Normal factory would produce 50,000 automobiles in 2022, but Rivian would produce only half of that number, 25,000, due to supply chain difficulties.

Amazon is the first country to re-open its doors.

Rivian Is a Loss-Maker for Amazon and Ford

These operational difficulties are reflected on the stock market, as Rivian shares have dropped 69 percent this year. In this four-month period, Rivian''s market capitalization has decreased by $63.4 billion, to $28.2 billion. It''s no surprise that the shares of Amazon and Ford have also been affected.

Another issue: Companies in their earnings reports must update the fair values of their securities they hold. These securities are usually valued in terms of market capitalization, by using the values on the last trading day of a quarter.

Rivian stocks lost 52% more than half of their value from December 31 to March 31.

During the first-quarter earnings call, Amazon''s chief financial officer told analysts on April 29.

"While we primarily focus our concerns on operating income, I''d say that this net loss includes a pre-tax valuation loss of $7.6 billion in nonoperating expenses from our common-stock investment in Rivian Automotive."

This impairment is comparable to that of Amazon''s participation in Rivian in the fourth quarter of 2021, when the internet business received a $12 billion gain.

From January to March, Ford, the manufacturer of the hugely popular F-150 sedan, had reported a net loss of $3.1 billion. In the first three months of 2021, the company had generated a net income of $2.3 billion.

The veteran carmaker said that its losses were caused by external elements to its operations.

"A net loss of $3.1 billion was primarily attributed to a mark-to-market loss of $5.4 billion on the company''s investment in Rivian. Adjusted earnings before interest and taxes were $2.3 billion," Ford said.

Rivian''s acquisition by Fords was valued at $5.1 billion on March 31, down more than half from $10.6 billion at the end of 2021, according to the company.

Neither Amazon nor Ford will say if they intend to reduce their share in Rivian. Jim Farley, Ford''s CEO, declined to comment on the matter.

"As we enter the, I think, 180-day lockup deadline on your investment in Rivian, how are you thinking about the options available to you in terms of this investment going forward?" said J.P Morgan analyst Ryan Brinkman during his earnings'' call.

Given the recent decline in Rivian shares, you might be more inclined to retain some or all of the stake?

"Unfortunately at this point, we''ll not comment on Rivian," Farley said.

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