Electric vehicle startup Rivian on Thursday introduced its R2 crossover, the mass market EV the company for years said would be built at a new Georgia factory the company as recently as last month said would open in 2026.
The expected landmark moment for Georgia’s emerging EV sector instead turned into disappointment.
Rivian CEO RJ Scaringe announced the two-row EV would start production at the company’s existing factory in Illinois. Though he said expansion in Georgia remains part of Rivian’s future, the company announced the $5 billion factory is on hold.
“I want to be absolutely clear we remain committed to building our future in Georgia,” Scaringe wrote in an op-ed to The Atlanta Journal-Constitution. “This shift in launch cadence puts us in a stronger position prior to launching our Georgia plant.
Credit: Natrice Miller / Natrice.Miller@ajc.com
Credit: Natrice Miller / Natrice.Miller@ajc.com
California-based Rivian has yet to turn a profit. Its cash pile has shrunk from nearly $20 billion when it went public to less than $8 billion at the end of last year. Mass production of anything, particularly something as complex as an EV, is hard, and Rivian has had to grapple with pandemic-induced supply chain issues and competition from Tesla and traditional automakers among other challenges.
The decision to pause the factory — and put on ice 7,500 promised Georgia jobs — conserves cash for an upstart company still struggling to find its way to profitability in a competitive EV marketplace made more challenging by softer than expected demand.
But for Georgia, the decision stings.
“They need to stem the bleeding,” said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions. “Keeping the costs away from building the new plant for the time being will help them improve their status at the moment.”
A crunch for cash
When electric vehicle pioneer Tesla rocketed to become the world’s most valued automaker in 2020, it didn’t take long before Wall Street began searching for a rival.
Rivian emerged as the most likely upstart candidate. Its November 2021 initial public offering was one of the biggest American history. The company’s valuation peaked at more than $100 billion, briefly surpassing juggernauts like Ford, an early Rivian investor, and General Motors.
Credit: TNS
Credit: TNS
Other deep-pocketed investors include Amazon and Cox Enterprises, owner of the AJC, which owns about a 4% stake in Rivian.
But Wall Street’s stratospheric expectations soon met their match with a pandemic-influenced squeeze on materials like computer chips and Rivian’s struggles to meet demand for its vehicles. A high interest rate environment and fears of recession strained many tech companies as investors starting valuing immediate profits over long-term promise.
“They’re going into an industry that’s very challenging with a new product for consumers to adopt,” said Kevin Ketels, an assistant professor of global supply chain management at Wayne State University in Detroit. “And it’s a very complex supply chain that’s immature at best that (Rivian is) trying to figure out.”
Rivian has raised additional funds over the past three years, including a $1.3 billion bond issuance that was advertised to help finance the future Georgia plant, but its executives have stressed they need to trim costs and turn a profit soon.
Over the past two years, the company has steadily seen its revenue increase in line with its production ramp-up, but the high cost to build its vehicles has kept the company deep in the red. Rivian has lost at least $1.2 billion each of the past eight financial quarters.
Rivian officials expect to lose money again in 2024, but they aim to turn a profit by this year’s fourth quarter.
They’ve implemented several rounds of layoffs along with technology improvements aimed at cutting production cost. But the Georgia factory is a huge expense for a company that’s suddenly had to become thrifty.
Rivian said it will save the company more than $2.2 billion to shift initial R2 production to Illinois rather than waiting to build-out a second plant.
“The company needs to cut its losses at the moment and start seeing some better finances coming out of these vehicles,” Fiorani said. “Once they can get past that, then they’re going to need a second plant.”
Scaringe, in his AJC op-ed, said the Georgia site will remain a critical part of scaling R2 production, even though the first wave of vehicles will be built elsewhere.
Credit: Courtesy of Rivian
Credit: Courtesy of Rivian
Fine-tuning first factory
Rivian has never built a factory from ground up before.
Its Illinois plant is a repurposed Mitsubishi factory that Rivian scooped up in 2017 for pennies on the dollar. There, Rivian builds its R1T pickup trucks, R1S SUVs and electric delivery vans, of which Amazon ordered 100,000 units.
Tesla, in its first few years, ran into production problems. Rivian immediately hit snags, too.
In 2022, its first full year of production, a pandemic shortage of computer chips and semiconductors forced Rivian to cut its 50,000-unit goal that year in half. Rivian ended 2022 just shy of that reduced goal.
Last year, Rivian assembled more than 57,000 vehicles, exceeding its annual production goal by more than 3,000. But Rivian said it would keep its production number flat this year, disappointing Wall Street and investors punished its stock price.
Investors so far have cheered Rivian’s plans. The Illinois factory has a production capacity of 150,000 vehicles, nearly triple its current output. Rivian officials said incorporating the R2 into the Normal factory will boost its capacity to about 215,000 vehicles.
“Normal has so much space left in it that the R2 would have to be an overwhelming success for them to hurry the second plant,” Fiorani said.
Credit: RON JOHNSON
Credit: RON JOHNSON
As proposed, the Georgia factory’s first phase will include the capability to produce 200,000 EVs, eventually growing to double that figure. Scaringe wrote in his AJC op-ed that pausing the Georgia factory is a lesson learned from the troubles ramping up R1T and R1S production.
“Every successful business must continuously adapt to the reality in which we operate,” he wrote.
Reaching a mass market
Not only do you have to build vehicles, you have to find people to buy them.
Like Tesla before it, Rivian made immediate die-hard fans and amassed a yearslong order book for its electric pickup truck and SUV, both of which won multiple industry awards. Those early adopters were willing to pay north of $70,000 and wait years to receive their new EV.
Industry experts say that enthusiasm is beginning to wane, which is beginning to take a toll on Rivian.
“Our automakers were optimistic about how many electric vehicles they would be able to sell,” Ketels said, but he said forecasts for high-end models were unrealistic.
Though U.S. electric vehicle sales surpassed 1 million in 2023, some automakers have rolled back or delayed EV investments, citing demand issues.
Scaringe has remained steadfast in interviews and earnings calls, saying he believes the industry will electrify and that Rivian will be at the forefront.
“Our business is not immune to existing economic and geopolitical uncertainties,” Scaringe said Feb. 21 during a fourth-quarter earnings call. “... We need to recognize only 7% of the market has electrified, meaning that really we’re talking about how to get the 93% of the market that’s not buying an EV to get excited about the product.”
Bringing down vehicle costs
Rivian’s vehicles, which can reach the low six figures, are out of reach for many. Higher interest rates, which makes borrowing more expensive, haven’t helped.
President Joe Biden’s signature climate law adopted in 2022, the Inflation Reduction Act, included hundreds of billions of dollars to incentivize clean energy projects such as EVs, but it also narrowed the number of EVs that qualify for purchaser tax breaks.
Among the new rules was an $80,000 cap on SUV and truck sticker prices to qualify, a sum that is lower than the prices of many of Rivian’s flagship R1T truck and R1S SUV models.
Credit: arvin.temkar@ajc.com
Credit: arvin.temkar@ajc.com
Under Secretary of State Jose Fernandez, who visited Georgia last month on a clean energy tour, said the IRA’s policies will ultimately benefit the country, even if there’s some bumps in the road.
“The transition will not be linear, but the long-term goal is clear,” Fernandez said.
The R2 is expected to start at about $45,000, which easily qualifies it for a $7,500 tax credit under the IRA. The R3 and R3X models Rivian announced Thursday are also potential volume sellers, both with anticipated sticker prices cheaper than the R2.
On the social media platform X, formerly known as Twitter, Scaringe said that Rivian received more than 68,000 R2 purchase reservations in less than 24 hours since its formal launch, a promising sign.
Ketels said the Georgia factory will only make sense once Rivian’s demand — and production capabilities — outgrow its Illinois plant.
“Can they get that momentum and can they gather enough customers to propel themselves into the future?” Ketels said. “That’s yet to be seen.”
