Rivian CEO RJ Scaringe faces a tough electric truck market

Rivian Automotive CEO RJ Scaringe needs to sell many more electric vans and pickups to boost its run-down stock price and fund its ambitious long-term growth plans, but the startup is struggling to buy the parts to build them .

Scaringe can’t get all the semiconductors Rivian needs to speed up the assembly lines at his Normal, Illinois factory. Chip suppliers are skeptical about the fledgling electric vehicle company’s ability to hit promised production numbers. They instead allocate more chips to established customers based on the number of vehicles they’ve built in the past, Scaringe said during a tour of the plant.

“I have to call semiconductor supplier Y and say that supplier X has given us so many and make everyone comfortable because the system is unproven,” Scaringe said while driving a golf cart through the factory.

Scaringe believes suppliers are holding back and wonders if Rivian is using semiconductor shortages as an excuse to cover up more serious manufacturing problems. “It’s really frustrating,” he said.

Rivian isn’t the only automaker caught in a supply chain shadow zone.

“There’s certainly an allocation” of chip suppliers, said Dan Hearsch, managing director in the automotive practice of consulting firm AlixPartners. Small-lot manufacturers are met with skepticism — “Are you legit?” — while larger players are willing and able to pay for a year’s worth of chips in one transaction, he said.

“On the basis of volume, reputation and consistency, they (larger automakers) are more attractive,” Hearsch said.

Rivian, which counts Amazon and Ford Motor as major shareholders, was sold.

Rivian shares are down 60% so far this year, falling more than 70% from their peak of $179.47, set shortly after the November 2021 IPO. Shares fell sharply in March after Rivian halved its 2022 production forecast to just 25,000 vehicles.

Rival Tesla CEO Elon Musk took a swipe at Rivian, tweeting, “I would recommend getting your first plant up and running. It is insanely difficult to achieve mass production at an affordable unit cost.”

Rising raw material costs increase the pressure. At the beginning of March, Rivian attempted to increase the prices for vehicles already on order by up to 20%. Customers complained, the company reversed course and Scaringe apologized.

One of the top priorities for Scaringe and other Rivian executives now is convincing supplier executives that Plant Normal and its workforce are ready to accelerate. As part of this effort, Rivian has opened the doors of its Normal factory to supplier executives and the media.

Rivian has almost completely rebuilt and upgraded the plant. Once owned by Japanese automaker Mitsubishi, its line of towering metal stamping presses now produces large aluminum panels for the bodies of Rivian’s vans and off-road electric trucks and SUVs.

Rivian operates two largely separate vehicle assembly systems within the Normal factory. One builds two sizes of electric delivery vans for Amazon. The other builds Rivian R1-series electric pickups and SUVs that sell for $67,500 to $95,000. Before the price increase, the most expensive Rivian vehicle cost $83,000.

Rivian now builds and delivers R1 trucks and SUVs to customers and assembles vans for Amazon to test. Stopping production peaks at the factory when parts run out, executives said. In the first quarter, Rivian assembled an average of about 40 vehicles per weekday – less than an hour’s output when the plant was running at full speed.

“I’d love to manage a full five-day shift,” said Scaringe. Rivian vehicles have about 2,000 parts, he said. “Half a percent of that is contested.”

Scaringe told Reuters that further price increases are inevitable, and not just at Rivian, due to the combination of scarce parts and rising raw materials.

“We expect pricing to remain under pressure where it will continue to increase over time,” he said. “We undoubtedly did poorly last time how we introduced that. But looking ahead, we expect more price increases, similar to what we’ve seen across essentially the entire auto industry.”

Rivian had more than $18 billion in cash at the end of 2021, and Scaringe said the company won’t need to raise any more capital “in the immediate short term.” But the concurrent manufacturing crunch and cost hike could be delayed if Rivian is able to turn gross margins and cash flow positive.

This is required if it is to begin to self-finance its substantial capital needs.

These include building a new assembly plant in Georgia for the planned R2 line of compact, more affordable trucks and investing to secure higher battery production. Rivian wants to manufacture its own battery cells while expanding its list of battery suppliers.

“Long term, we envision a world where we will make some of our own cells and buy cells from great partnerships that we have,” said Scaringe. “The two are by no means mutually exclusive.”