On March 7 Rivian is expected to unveil a smaller and cheaper sport-utility vehicle called the R2 to compete against the Tesla Model Y. Although such a move could be crucial to boosting the fledgling automaker’s modest sales, volume production isn’t expected until 2026. Can Rivian hold on that long?
Just as importantly, will the R2 be the breakthrough Rivian needs when the $40,000-to-$60,000 segment of the electric-vehicle market is expected to get more entries — and the R2 will not have a truck variant (Ramey, 2024)?
When asked whether new capital would be needed to launch the new vehicle, Rivian head RJ Scaringe told CNBC that “we are very confident in the capital we have supporting operations through the end of 2025” (Mollman, 2024).
Also see ‘Does Rivian lose more than $100,000 on every vehicle it sells?’
However, Scaringe pointed to the need for Rivian to achieve greater efficiencies. This week the automaker announced a cut in salaried workforce of roughly 10 percent. A four-quarter gross profit was expected this year (Mollman, 2024).
Some analysts consider that optimistic given Rivian’s projected production for 2024 would only hit 57,000 units, which would be flat with 2023 (Subramanian, 2024; Norton, 2024). Rivian has blamed “economic and geopolitical uncertainties” such as high interest rates for its lower expectations in 2024 (Masunaga, 2024).
Aggressive growth plans look increasingly risky
In June 2022 Tesla head Elon Musk had warned that Rivian needed to cut costs “dramatically or they’re doomed” (Mollman, 2024). This week on X Musk (2024) added that Rivian could become bankrupt in around six quarters if its cash-burn trajectory didn’t change.
The automaker lost $5.43 billion in 2023 (Iliff, 2024). That was down from $6.8 billion in 2022, but it drains Rivian’s capital as demand for EVs has reportedly slowed in the U.S. (Ramey, 2024).
How can Rivian cut costs given its aggressive growth strategy, which has included building a second plant in Georgia even though passenger-car production has been far below capacity at its first plant in Normal, Illinois?
Also see ‘Gallup finds attitudes toward EVs vary sharply by party and age’
This has led Bloomberg columnist Chris Bryant (2024) to complain about the riskiness of a business plan that depended on enormous amounts of capital.
If Rivian’s optimistic projections for 2024 don’t pan out, then what happens? Does the automaker take more dramatic steps to retrench, such as putting on hold its second plant and manufacturing the R2 in Illinois? Or has Rivian gone past the point of no return — and may need to seek a deeper-pocketed savior?
If Rivian loses its independence, I suspect that it will be because of two strategic errors: 1) Its first products proved to be too big and expensive for the market, and 2) Rivian expanded production capacity far too aggressively.
NOTES:
Tesla sales figures from Automotive News 2023 Yearbook (2023).
Share your reactions to this post with a comment below or a note to the editor.
RE:SOURCES
- Automotive News 2023 Yearbook; 2023. “U.S. light-vehicle sales by nameplate – 2023-2022.” Automotive News (subscription required). Published Dec. 25: p. 62.
- Bryant, Chris; 2024. “Rivian’s Expensive EVs Can’t Find Reverse Gear.” Bloomberg (subscription required). Posted Feb. 23.
- George, Patrick; 2024. “Scout Motors EV Could Be More Expensive Than We Thought, No Hybrid: CEO.” InsideEVs. Posted Feb. 16.
- Iliff, Laurence; 2024. “Rivian’s Q4 net loss narrows to $1.52 billion as it cuts staff by 10% and forecasts flat 2024 production.” Automotive News (subscription required). Posted Feb. 21.
- Masunaga, Samantha; 2024. “Once the darling of the EV world, the electric truck-maker Rivian is reeling.” Los Angeles Times. Posted Feb. 22.
- Mollman, Steve; 2024. “Elon Musk says Rivian needs to ‘cut costs massively’ and its execs should ‘live in the factory’ or the Tesla rival will die.” Fortune (via Yahoo!finance). Posted Feb. 22.
- Musk, Elon; 2024. X post on Feb. 21 at 7:33 p.m.
- Norton, Kit; 2024. “Rivian Lays Off 10% Of Workforce As Lucid Production Underwhelms. Elon Musk Expects Bankruptcies.” Investor’s Business Daily. Posted Feb. 23.
- Ramey, Jay; 2024. “Can The Rivian R2S Right The Ship?” Autoweek. Posted Feb. 23.
- Subramanian, Pras; 2024. “Rivian, Lucid tumble as analysts grow wary of ‘lackluster’ growth, new product timelines.” Yahoo!finance. Posted Feb. 22.
I would add two more potential causes for demise:
3) The hubris of believing that there would be an endless amount of VC funding money.
4) The hubris of believing that the EV market was far greater and more accepting than it really is.
To blame poor performance because interest rates have risen is a lame excuse for bad expectations. Sure, increasing rates do have an effect but believing that they will not change/are immune from change is bad economic forecasting.
Fully electric vehicles have only improved incrementally, in my opinion. If one lives in an area where the average winter temperature is below 32-degrees Fahrenheit, E.V. ranges are compromised. And while I am alarmed about the impacts of global warming, I am not trading my Kia in on a full E.V. Battery technology has not made the breakthroughs promised when Barack Obama first took office. I am disappointed about Royal Dutch Shell announcing it was cutting back on hydrogren fueling distribution and infrastructure.
In 2005, the then-mayor of Indianapolis, who singlehandedly went all-in with money the city of Indianapolis (an avowed conservative Republican) did not have to go all-electric with city vehicles and city buses. The buses from China have been trouble since the day they arrived, and the E.V.s for city vehicles including police detectives were too small for most police officers’ necessary equipment as opposed to the Crown Vics and Impalas they had been using. The buses were supposed to charge by induction with charging elements imbedded in the roads at bus stops, but at a million-dollars a pop, every stop has been rebuilt twice in the past five years. Things are marginally better, but I am going to guess that the levels of inductive radiation are off the chart, and the rebuilt buses are still unreliable. One of these Chinese buses self-immolated during a morning rush hour with a full passenger load a couple of months ago. Nothing was salvageable from the burned-out shell. Until these electric wonder machines arrived from the country that wants to destroy us, Indianapolis still had Flexible Flyers and 1965 G.M.C.s in its bus systems on-the-roads !
Rivian had all of the automotive magazines raving about their vehicles, but then, no business can afford to lose over $ 43-thousand dollars on every delivered vehicle, if Rivian’s numbers are accurate. Lucid may be next. Jim Farley’s cross-country trip in a Ford F-150 Lightning last year opened a lot of eyes about the limitations of fully electric vehicles in 2023-2024.
Me ? I want hydrogen-electric or cold fusion propulsion ! I probably won’t be alive to see it !