CEO leads electric truck startup Rivian through supply chain twilight zone

NORMAL, Ill., April 18 (Reuters) – Rivian Automotive Inc (RIVN.O) CEO RJ Scaringe needs to sell far more electric vans and pickups to boost the stock price and fund his ambitious plans to long-term growth, 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 its Normal, Illinois plant. Chip suppliers are skeptical of the ability of the young electric vehicle company to meet the promised production figures. Instead, they allocate more chips to established customers based on the number of vehicles they’ve built in the past, Scaringe said during a factory tour.

“I have to call semiconductor vendor Y and say that’s the number that vendor X gave us, and put everyone at ease because the system is unproven,” he said. Scaringe while driving a golf cart around the factory.

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

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

“There’s definitely an allocation” by chip vendors, said Dan Hearsch, general manager of automotive practice for consulting firm AlixPartners. Low-volume manufacturers face skepticism – “are you guys for real?” – while the biggest players are willing and able to pay for a year’s worth of chips in a single transaction, he said.

“Based on volume, reputation and consistency, they (the big automakers) are more attractive,” Hearsch said.

Rivian, which counts Inc (AMZN.O) and Ford Motor Co (FN) as major shareholders, has come under fire.

Shares of Rivian have fallen 60% so far this year and are down more than 70% from their high of $179.47, reached shortly after the November 2021 IPO. The shares have fell sharply in March after Rivian halved production guidance for 2022 to just 25,000 vehicles. Read more

Rival Tesla Inc (TSLA.O) Managing Director Elon Musk took a swipe at Rivian, tweeting “I would recommend them to run their first factory. It’s incredibly difficult to achieve volume production at a unit cost affordable.”

Rising raw material costs are adding pressure. In early March, Rivian attempted to raise prices by up to 20% for vehicles already on order. Customers complained, the company backtracked, and Scaringe apologized. Read more

Now, a top priority for Scaringe and other Rivian executives is convincing supplier executives that the Normal factory and its workforce are ready to ramp up. As part of this effort, Rivian opened the doors of its Normal factory to supplier executives and the media.

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

Rivian operates two largely separate vehicle assembly systems inside the Normal plant. One is to build two sizes of electric delivery vans for Amazon. The other builds Rivian’s R1-series electric pickup trucks and SUVs, which sell for between $67,500 and $95,000. Before the price hike, the most expensive Rivian vehicle was priced at $83,000.

Rivian now builds and delivers R1 trucks and SUVs to customers, and assembles vans for Amazon to test. Bursts of production at the factory stop when parts run out, executives said. During the first quarter, Rivian assembled an average of about 40 vehicles per weekday, or less than an hour of production if the plant was running at full capacity.

“I would love to run a full five-day shift,” Scaringe said. Rivian vehicles have around 2,000 parts, he said. “A half of one percent of them are disputed.”

Scaringe told Reuters that more price increases were inevitable, and not just at Rivian, due to the mix of rare parts and rising raw materials.

“We expect prices to remain under pressure, where they will continue to rise over time,” he said. “We did a poor job of how we rolled this out last time, no doubt. But going forward, we expect further price increases, much like we saw in the entire automotive industry.”

Rivian had more than $18 billion in cash at the end of 2021, and Scaringe said the company wouldn’t need to raise more capital “in the immediate short term.” But the simultaneous production crisis and soaring costs could delay when Rivian will be able to turn positive gross margins and cash flow.

It must do this if it wants to start self-financing its large capital needs.

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

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

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Reporting by Joseph White; Editing by David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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