Is It Already Too Late for Rivian to Follow Tesla’s Lead?
The electric vehicle startup may reach a wider audience with a $45,000 SUV, but competition is heating up.
When it comes to strategy, Rivian is strictly mimicking Tesla. However, the market for electric vehicles has progressed.
Rivian will break into the mainstream of the fledgling American electric vehicle sector with the unveiling of its new, aesthetically pleasing automobiles on Thursday by CEO RJ Scaringe. An indicative price of $45,000—just above Tesla’s Model Y—marks the beginning of the order window for the R2 sport-utility vehicle.
Moving into more affordable price points is a sensible move by Rivian. Launching the Models 3 and Y in the second part of 2019 gave more scale and consistent profitability to Tesla, building on the reputation it earned with the higher-end Models S and X. The R1S SUV and R1T premium pickup truck debuted in 2021 and 2022, respectively, on the same platform as Rivian’s new platform, which also promised to put the company into the black, but not for a while.
A lot of people were skeptical about Tesla’s Model 3 gamble when it was first announced. It appeared to be a risky gamble at a time when the corporation might have made more money in the high-end market. Despite the notorious “production hell,” it was worthwhile in the end. That is the inevitable perspective from which Rivian’s new platform will be viewed: a trial run may be required to build a fully-scaled carmaker.
However, the Tesla parallel does have certain issues. The most important one is the delivery schedule: Scaringe surprisingly debuted the smaller R3 on Thursday, but it won’t be available for purchase until much later, in 2026. The lack of competition for Tesla’s agenda-setting EVs was a major factor in the company’s success in the United States. In addition to the bar that Tesla has set, Rivian will face a deluge of new offerings from well-established car companies.
There was a very hospitable climate for car sales throughout the epidemic, which was good for Tesla as well. The already-crowded midsize SUV category, which the R2 will service, is no longer an attractive possibility to investors; instead, the potential of $25,000 EVs has piqued their interest.
Cost is an additional distinction. Constructing a second vehicle production in cost-effective China to service the massive local EV market and Europe coincided with Tesla’s consistent profitability. In the vicinity of Atlanta, Rivian is also planning a second car plant. The birth of the Model 3 made EV geopolitics much more difficult.
The temporary improvement in monetary conditions has been both a boon and a bane for Tesla’s devotees. After its well-timed IPO in 2021 caused cost complacency, Rivian has spent the previous two years attempting to shake it off.
On Thursday, excellent news regarding cost containment was announced: instead of constructing the R2 close to Atlanta, Rivian would first utilize the Illinois facility that produces the R1 vehicles. This puts it in line with Tesla, which scaled up manufacturing of the Model 3 in China after starting it at its initial facility in Fremont, California. According to Rivian, the adjustment will result in savings of $2.25 billion in areas such as supplier procurement, product development, and capital investment.
Thursday, the stock price increased by thirteen percent. Most importantly, the new strategy may prevent the firm from having to go back to the capital markets. According to a note written by Philippe Houchois, an analyst at Jefferies, Rivian may require $2.5 billion in additional funding to launch R2 manufacturing, as stated before Thursday’s news.
No matter how promising the future may seem, Rivian faces a challenging year ahead in 2024. Reducing expenses on the older R1 platform is just as important as getting the R2 project underway. It revealed last month that it will not be increasing output this year, frightening investors, in part because this would necessitate halting operations in the second quarter.
Following Thursday’s recovery, the stock remains down 19% from that letdown and 84% from its irrational start. The initial public offering (IPO) raised almost $12 billion, which is today the market value of Rivian. Considering the company’s projected loss for the next several years and the dynamic nature of the electric vehicle market it serves, it is hard to say whether or not there is value.
Even though it is the greatest American electric vehicle startup, Rivian is still seeing more danger than opportunity on its path forward.
