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Wednesday, Dec 7, 2022

Rivian Charges Up

Some might say Rivian Automotive Inc. (Nasdaq: RIVN) had a decades-long headstart at developing a competitive advantage. Founder RJ Scaringe, 38, said he’s been obsessed with cars for as long as he can remember.

The constant tinkering from the time he was a kid, when he stowed vehicle hoods under his bed and had engine parts strewn on his desk, is now the backbone to an Irvine electric vehicle maker that’s looking to reshape the global automotive industry.

The upstart went public in November, making waves as Orange County’s largest IPO on record, by a wide margin.

Nationally, it was the most anticipated IPO of 2021, raising more than any other U.S. company since 2014, with gross proceeds of $13.5 billion.

With a valuation at one point topping $150 billion, and around $92 billion as of early last week before a late-week dip, Rivian became the most valuable public company OC’s ever seen.

Those lofty numbers alone make Scaringe an easy pick for one of the four Business Journal Businesspeople of the Year selections for the year.

Each of the four execs selected and featured in this edition brought their company public last year via an IPO (see related stories, page 1, 6, and 8).

Production Issues

Fund raising work aside, the work’s just barely begun for the EV maker that many see as the most promising challenger to Elon Musk’s Tesla (Nasdaq: TSLA), the world’s most valuable automaker.

Rivian must now ramp its production, as it seeks to make meaningful headway on gaining market share. Wall Street is carefully watching as the business attempts scale while navigating a global supply chain crisis and production constraints that prompted Scaringe to send a note to customers just a few days before the start of the new year to update them on the delivery delays.

Scaringe, through a spokesperson for the company, declined to comment for this story late last year, citing his focus on year-end production goals and the company’s strategy for 2022. The company also declined to make additional executives available for this story.

Outside of a round of New York business media appearance on the day of its IPO, and some test-driving events for its vehicles, the company and its execs have largely remained on media lockdown over the past several months.

Analysts homed in on the company’s production capacity and the building of the battery modules for the vehicles in mid-December in what marked Scaringe and the company’s first quarterly update as a public company.

“We’re working as hard as we can to ramp, recognizing the rate at which preorders are coming in exceeds the current rate of production,” Scaringe told analysts.

“We absolutely need to work to sort of have supply, so to speak, catch up with demand.”

As of the company’s latest financial update, Rivian said it generated revenue of just $1 million for the quarter ended Sept. 30. The revenue came from the delivery of 11 R1T trucks. Since then, the company began deliveries of the R1S SUV in December.

The company said as of Dec. 15 that it had preorders for about 71,000 R1Ts and R1Ss in the U.S. and Canada.

The R1T currently starts at $67,500, while the R1S starts at $70,000.

Net losses, as expected, continued to balloon in the third quarter, widening from $288 million in the year-ago period to $1.2 billion.

Adding Capacity

As the company ramps production in Normal, Ill., with an approved 623,000-square-foot expansion bringing its manufacturing base there close to 4 million square feet, it also confirmed late last year it will open a second manufacturing plant in Georgia, east of Atlanta.

The $5 billion project is expected to generate 7,500 jobs and, once fully operational, is estimated to be able to churn out as many as 400,000 vehicles annually when production begins in 2024.

Construction for the Georgia plant is expected to start this summer.

Scaringe reiterated throughout his December update with investors that the production issues the company is encountering are “short-term, solvable problems.”

Building the battery packs has been one of the major bottlenecks and, to that end, Scaringe’s Dec. 28 update to customers confirmed the company would ramp production with Adventure Package vehicles, or those using the company’s large pack battery, would be the priority this year. About 20% of preorders represent that vehicle configuration, which offer a bit more than 300 miles of range on a full charge.

The company will then turn to preorders of Explore Packages, using the max pack battery and a range closer to 400 miles, in 2023.

“In ramping up a product system like this, it is a really complex orchestra,” Scaringe said.

Amazon Focus

Beyond the challenge of supplies and production, the company also continues to focus on its commercial business.

Notably, its exclusivity agreement with core investor Amazon has it working to fulfill a 100,000-unit order for electric delivery vehicles.

“Amazon represents such a large customer, or such a large pool of demand for us and, as a result, we’re very focused on making sure that we deliver to their needs. They’re not only the largest player in the last mile space, but they’re also the most rapidly electrifying, so it’s really critical that we do not starve them of vehicles,” Scaringe said.

At the same time, Rivian will also have to diversity its commercial users beyond Amazon in the future.

Scaringe said there’s more potential for the consumer vehicle platform beyond last-mile delivery for which the e-commerce giant Amazon is deploying its Rivian vans.

“Outside the last-mile delivery space, there is a huge market out there, and we are seeing a lot of inbound interest. We are actively engaged with players in this space looking at different formats or configurations that could serve their specific use cases. So, we are excited about the size of this opportunity outside of the last mile ability space,” Scaringe said.

Customer Learnings

The company is learning more about its consumer customer base as more vehicles are delivered and preordered.

“It sort of validated the strategy and the hypothesis that we had in terms of positioning the R1,” Chief Growth Officer Jiten Behl told analysts of what the company is learning about its customers.

“We had always intended this vehicle to be in this white space and, by definition, white space should be attracting share from a lot of adjacent markets and segments,” Behl said.

“What we are finding is a true validation of that hypothesis where a vast majority of our customers are coming from, one, never having owned an electric vehicle before the R1T.”

In fact, Behl said 90% of Rivian’s customers have never owned a truck before and part of that activity he said is being driven by marketing efforts.

“We are expecting this to actually only get even bigger once the R1S hits the market,” he said.

The demand is allowing the company to look at its current pricing structure for the truck and SUV with Behl saying “it has also opened up opportunities on what we could do from the quality of earnings from a pricing point of view, so we are looking at all these options right now.”

“With regards to pricing, it is certainly the backdrop of inflation that we’re seeing and the very strong demand for products, not just within our product set, but I would say broadly within the electric space, has caused us to look at our pricing,” Scaringe said.

The CEO added, “In terms of the competitive set, we recognize we’re very aggressively priced so that is something that we’ve certainly considered and talked about quite a bit as a management team.”

Building a Brand

Part of the disruption Rivian aims to make in the auto industry is clear on the marketing side.

The company’s online Gear Shop sells $75 crewneck sweatshirts, $35 crop tops, vehicle mounts for skis or snowboards retailing at $320 and an assortment of other soft and hard goods subtly-branded with Rivian’s compass logo.

Outside of product, Rivian’s been good at marketing its commitment to sustainability to a new generation of consumers that transcends age and is environmentally-minded.

The company revealed in October it started a Forever fund that will see 1% of the company’s equity funneled into climate and preservation initiatives.

The efforts bring to life the full vision Scaringe developed early on that melds his love for cars with his love for the outdoors into the enterprise he and the management team are attempting to scale.

“As I got older, I realized that these things, which I was deeply in love with, were simultaneously the source of many of society’s biggest environmental challenges—from air quality to reduced biodiversity to climate change,” he wrote in Rivian’s IPO prospectus.

“As someone who also loves the outdoors, I was conflicted. Ultimately, I decided to focus my life on helping drive our transportation system toward a future state that was sustainable and carbon neutral.” 

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