The plan for EV maker Rivian to emerge from its ‘awkward teenage years’ – The Mercury News

By Queenie Wong and Laurence Darmiento, Los Angeles Times

Lars Dennert paid $100,000 for a forest green Rivian R1S, an electric SUV he enjoys driving on family road trips to the beach, snow and desert.

This year, he raised his wager on Rivian’s future, spending at least $10,000 on Rivian stock, which has hardly been a winner.

“I’m hoping for another Tesla, that down the road [Rivian] will prosper and their stock price will reflect that,” said the Pasadena resident, 56, who works in real estate development and property management.

It’s fans like Dennert that the Irvine company is counting on as it tries to navigate a rough road to profitability.

Rivian Automotive Inc. sold about 50,100 vehicles last year, boasting that its R1S is the best-selling SUV in California in the above $70,000 price category. The company also makes pickups and delivery vans.

Still, Rivian’s stock has plunged about 50% this year as production forecasts missed Wall Street estimates. Rivian also has been piling up big losses, including a net loss of $1.1 billion, or $1.08 a share, in the third quarter.

Amid the investor unease, the company is wrestling with supply chain woes, consumers wary about spending and, now, potential changes in EV policy under a second Donald Trump administration.

It didn’t help that Fisker, a Southern California competitor, filed for bankruptcy protection this year.

A $5.8-billion joint venture with Volkswagen Group that closed this month extended a lifeline for the EV maker, giving it capital to develop cheaper vehicles beyond its pricey SUV and R1T pickup truck, which starts at nearly $70,000.

Rivian also is expanding its only factory in Normal, Ill., which it acquired from Mitsubishi, and where it will build the R2, a smaller and more affordable SUV that starts at $45,000 and is set to launch in 2026.

Additionally, VW will benefit from Rivian’s expertise in technology as the two automakers work together on vehicle software, analysts said.

“The good news is [Rivian’s] got… a runway ahead of them. They’re not about to drive off a cliff in terms of financials. So they’ve certainly got some time to continue working against all these forces,” said Karl Brauer, executive analyst at iSeeCars.com, an automotive research website.

In an interview, Rivian’s Chief Executive and founder RJ Scaringe described a company in its “awkward teenage years.”

“I’ve never been more optimistic since the very first day I started the company around our ability to drive impact,” said Scaringe, 41, referring to Rivian’s influence in the EV market. “I’ve never felt as strong as I do…today around the importance of our existence.”

Growing pains

Scaringe, the son of an engineer and who was obsessed with cars as a kid, knew early he wanted to start his own business. The MIT engineering doctorate turned his dream into a reality in 2009 when he founded what would become Rivian, whose name stems from the Indian River in Florida where Scaringe spent his youth.

Back then, the company was based in Florida and focused on making a fuel-efficient sports car, but Scaringe yearned to leave a bigger mark on sustainability. The ambitious entrepreneur started working on electric pickups and SUVs and moved to Michigan to be closer to the auto industry.

At the 2018 LA Auto Show, Rivian finally showed off its debut vehicle, a premium electric pickup truck that wowed the industry with its technology. The earth tones, boxy design and oval headlights of the vehicle also contrasted sharply with Tesla’s sleek design.

A year later, Rivian scored a coup when Amazon invested $700 million into the company and ordered 100,000 delivery vans. In 2020, the company moved to Irvine, with its rich talent pool of engineers.

Rivian became a publicly-traded company in 2021 amid a stock bubble. Its stock briefly reached $170 per share on expectations that EV sales would take off, with the company’s valuation surpassing $150 billion, topping auto giants such as Ford.

But after its public debut, Rivian’s fortunes changed. Pandemic-related supply shortages slowed production and shook investor confidence as the company was unable to fill thousands of customer orders.

Today, Rivian’s stock is priced around $10 per share, as the company continues to be battered by the slowdown in the EV market, which has been squeezed by higher interest rates and ongoing anxiety from potential buyers over where they can get their vehicles recharged.

Another challenge: With list prices that start about $70,000, the company also faces stiff competition from industry leader Tesla, whose cheapest car, the Model 3, can be purchased for less than $45,000.

To stem the losses, Rivian cut 10% of its 16,700-plus workforce earlier this year (it employed about 2,200 locally in 2023, according to the Orange County Business Journal). And last month, Rivian lowered its 2024 annual production esimates to 47,000 to 49,000 vehicles, citing a supply chain issue that was reportedly due to an ordering mix up that left the company without adequate copper windings to build its electric motors.

Javier Varela, chief operations officer, downplayed the issue, telling analysts recently that Rivian faced a “short-term constraint” and was “ramping up a new capacity in record time.”

Meanwhile, policy changes still loom ahead and could have a longer term impact on the EV market.

President-elect Donald Trump has been critical of electric vehicles and could roll back tax credits and policies that fuel EV sales.

On the chopping block: a $7,500 tax credit for electric vehicle buyers — a move that could benefit Tesla, which is already able to sell its cars at a lower price point and make a profit, but could harm rivals such as Rivian. Elon Musk, who leads Tesla, has been a vocal supporter of Trump and poured millions into his presidential campaign.

While Rivian buyers are affluent and generally don’t qualify for the tax credit, drivers who lease the vehicles are more often able to take advantage of it. Scaringe minimized the importance of the credit, noting Rivian needs to build cars that don’t rely on government policy.

Chris Pierce, an analyst at Needham & Co., disagrees, saying every sale counts. “If less people are going to be able to get that credit through leasing, that’s less demand for Rivian,” he said.

Rivian also must contend with potential tariffs under a Trump administration that could raise the costs of imports. Scaringe told analysts during the company’s third-quarter earnings call that its sourced foreign suppliers won’t be subject to large tariffs.

The road ahead

Perhaps Rivian’s biggest challenge is to build vehicles that are competitively priced compared with gas-powered cars and trucks — even as it recorded a gross loss of $39,100 for every vehicle it sold during the third quarter. And those losses came despite its ability to sell emissions credits to other auto manufacturers, which it expects will total about $300 million this year.

The company recently upped its projected adjusted annual loss to as much as $2.88 billion for the year, but it has taken steps to cut costs through the introduction of a second generation of R1 SUVs and pickups. The redesigned vehicles have longer ranges and better performance, while using fewer and lower-cost parts.

Electric vehicles have circuit boards called ECUs, or electronic control units, that manage systems in the car, allowing the engine, brakes and other features to run smoothly. The new generation of vehicles cut the number from 17 to seven, which reduces costs while easing software updates.

“It’s like if you had an apartment complex and everybody had a toaster and a microwave versus an apartment complex with one really…nicely done professional kitchen,” Scaringe said.

The second-generation models include a tri-motor option that splits the difference between the company’s base SUV and truck models with two motors and its top-of-the line four-motor option, which produces more than 1,000 horsepower. The sticker prices of the new models range from about $70,000 to more than $100,000.

Unlike Fisker, which could not forge a strategic alliance with an auto manufacturer, Rivian has already benefited from its relationship with Volkswagen.

Rivian has received $1 billion from the German carmaker that Scaringe said the company can spend as it sees fit. In exchange, VW will be able to use Rivian’s electrical architecture and software as the foundation for any model it chooses to make.

“I think people were skeptical Rivian had this tech,” Pierce said. “Volkswagen wants to compete. They need to get their costs of selling cars lower, and this is how they think they can do that.”

In the past, Rivian had deals with major automakers, including with Ford, to make electric vehicles that didn’t pan out. So far, some of the early results of the new joint venture have been promising.

“This is one of the world’s largest car manufacturers with a portfolio of really exciting and interesting brands that’s making the decision to move their software architecture and their electronics architecture to Rivian’s platform,” Scaringe said.

Among Rivian’s top priorities is not only expanding its Normal, Ill., but also restarting construction of a plant in Stanton Springs, Ga. that it halted earlier this year after losing $5.4 billion in 2023. The company has plans to produce several other models, including a smaller SUV called the R3 that will be cheaper than the R2.