Rivian Prices Shares at $78 in Highly Anticipated IPO

This report from the WSJ states that Rivian is "backed by Amazon.com Inc." and that "Rivian has said it will launch three models by the end of the year. Among those is an electric delivery truck designed and built for Amazon. The e-retailer has an order for 100,000 of the trucks". 

The article raises several questions.

1. Is Amazon integrating backwards? 
2. If so, does the move make sense? 
1. Do transactions between EV truck manufacturers and Amazon require specialized investments? 
2. Are contracting costs high? 
3. If not, what other cost efficiencies might accrue? 

Another report. "The upstart auto manufacturer is backed by some big names, including Amazon.com Inc. and Ford Motor Co."

Update: "Ford Motor Co. F -0.87% and Rivian Automotive Inc. RIVN 4.23% have decided to go their separate ways rather than collaborate on future electric vehicles, backing away from an earlier strategic pact that led to a multibillion-dollar windfall for Ford."

Ford remains an investor. Its $500KK investment + "subsequent infusions" is now valued at $12.8KKK.

Rivian's market value > Ford's. Rivian delivered 42 cars in the last 5 weeks or so and its revenue = $0 in the third quarter of this year.

The World Relies on One Chip Maker in Taiwan, Leaving Everyone Vulnerable

TCSM is almost a monopoly in some sectors fo the semiconductor industry. (WSJ,June 2021) What does the 5-forces model say about its prospects for earning a high rate of return? What do you see as its strategy?

Here are some money quotes.

1. "Its technology is so advanced, Capital Economics said, that it now makes around 92% of the world’s most sophisticated chips, which have transistors that are less than one-thousandth the width of a human hair. Samsung Electronics Co. makes the rest. Most of the roughly 1.4 billion smartphone processors world-wide are made by TSMC.
   
   It makes as much as 60% of the less-sophisticated microcontrollers that car makers need as their vehicles become more automated, according to IHS Markit, a consulting firm."
2. "Semiconductors have become so complex and capital-intensive that once a producer falls behind, it’s hard to catch up. Companies can spend billions of dollars and years trying, only to see the technological horizon recede further.
   
   A single semiconductor factory can cost as much as $20 billion. One key manufacturing tool for advanced chip-making that imprints intricate circuit patterns on silicon costs upward of $100 million, requiring multiple planes to deliver."
   
   TSMC’s own expansion plans call for spending $100 billion over the next three years. That’s nearly a quarter of the entire industry’s capital spending, according to semiconductor research firm VLSI Research."

Bargaining Power in the Streaming Industry

Does Roku need WarnerMedia more than WarnerMedia needs Roku (WSJ, Dec. 2020). Also, who is buying and who is selling? "Roku initially paid media companies to license content for the channel. But lately, Roku has demanded programming from media companies as a toll for carrying their apps, people familiar with Roku negotiations said. If media companies provide enough compensation to Roku in other ways, such as ad or subscription money, the company relaxes its demands for Roku Channel programming."

Bargaining Power of Suppliers

"Peter Jackson’s Special-Effects Firm Looks to Become a Content Producer" is an example of forward integration (WSJ, Dec. 2020).

Will economies of scope drive more mergers in the automobile industry?

The WSJ reports that the goal of the proposed merger of Fiat Chrysler and Peugeot is to increase profit. My question is, why would the merger => more profit. I see two alternatives. One way that a merger might increase profit is the merger's impact on the 5-forces. The combined market share of the two firms might gives them more bargaining power over buyers and sellers; it could reduce rivalry within the industry and it could make entry more difficult. The second way that a merger might increase profit is because the larger firm is able to take advantage of economies of scope. The article reports some evidence that economies of scope may be important.

"But Sergio Marchionne, the legendary Fiat Chrysler chief who died last year, was a persistent advocate for deeper consolidation. He drafted a 25-page manifesto in 2015 imploring the industry to share the costs of developing parts most customers never notice, such as engines in small cars.

“'It’s duplicative, does not deliver real value to consumers and is pure economic waste," the report said."

The previous mega-merger that was supposed to herald major changes in the structure of the industry was between Daimler and Chrysler two decades ago. That merger did not end well. 

An example of using the power of the government to raise barriers to entry

Why would Kentucky have a law that lets incumbent firms stifle entry into the ambulance industry? One answer: to help the incumbents earn profit in the long run.