Rivian has a Tesla moment

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Today’s Biggest News

Can Rivian Pull Off Its Tesla Moment?

Two-and-a-half years after it became the first automaker to bring a fully electric pickup to the consumer market, Rivian just announced its long-promised smaller, more affordable SUV—the R2. The specs: targeting a launch in the first half of 2026, starting price of $45,000, estimated range of 330 miles, and a 0–60 mph time under three seconds.

If the playbook sounds familiar, that’s because it is. The R2 is, in many ways, Rivian’s version of the Tesla Model 3—a crucial portfolio addition strategically timed to buoy a company struggling to reach profitability.

The Model 3 worked for Tesla. The company reported its first full-year profit in 2020…18 years after it was founded and just before the Model 3 became the first EV to pass global sales of 1 million. Together with the Model Y, the Model 3 allowed Tesla to achieve greater scale and more consistent profitability.

But can the same strategy work for another EV market entrant? Rivian’s financial struggles are notable. As a pure EV play, it has no plan B (read: hybrids or internal combustion engine models) to fall back on should EV sales growth continue to disappoint. So…can new models and a more aggressive strategy pull Rivian into the black? Let’s consider it.

Starting with the financials. Here’s the reality for Rivian right now:

• Reported a $5.4 billion net loss last year

• Had $7.9 billion in cash as of the end of 2023, down from $11.5 billion at the start of the year

• Just announced plans to lay off 10% of its salaried workforce in response to “challenging macroeconomic conditions”

• Warned that sales are expected to stay flat in 2024

• Lowered prices on its existing lineup after orders “notably decreased”

And? Just announced it’s hitting pause on a $5 billion facility east of Atlanta, GA. It’ll start making new models at its existing Illinois plant—a pivot that’ll bring $2.3 billion of savings in capital spending, product development, and supplier sourcing, Rivian said. Streamlining production is key to ramping up output…which itself is core to achieving profitability.

A closer look at supply chain and production, Rivian’s two biggest challenges:

• Rivian is known for its “skateboard” chassis, and its deep commitment to design details have won over a lot of customers (one owner on a Rivian forum: “You HAVE to get behind the wheel and drive it to realize what Rivian has done with this in their first year. This is the nicest vehicle I have ever owned and love it.”).

• But while the tech is impressive…it’s also hard to make fast enough and at scale. With that, Rivian has struggled to nail the intricacies of manufacturing (where have we heard about that before? Oh, right…“production hell,” anyone?).

• Rivian’s Illinois plant is operating at less than one-third of its build capacity. Paying for labor but not achieving scale in production is a costly setup.

• So? Rivian CEO RJ Scaringe said he’s focused on reducing how much Rivian pays suppliers for parts, simplifying design, and boosting production.

The goal with those changes is to move closer to profitability. Rivian said it aims to notch its first gross profit by the end of 2024. And there’s some reason for optimism: Rivian’s gross loss per vehicle sold has fallen by $81,000 over the past year.

It’s worth noting: Rivian isn’t the outlier—its pure play EV peers are facing similar pressure. Lucid has cut prices for its luxury EVs three times in the last seven months, Polestar lost Volvo’s financial backing, and stock charts look like this:

The industry POV suggests timing matters here. Even if Rivian can meet that profitability timeline (and we know how big timeline “ifs” are in the auto industry), there’s still the question of whether Rivian will enter into a welcoming EV market.

There’s the competitive element. Part of Tesla’s success in its profitability play had to do with a lack of real competitors. Rivian will be going toe to toe with both a more established Tesla and incumbent automakers that have collectively invested billions of dollars in bringing EVs to market.

There’s also the consumer element. It’s largely accepted that EVs are the future of mobility, but U.S. EV sales growth slowed to 47% last year…down from about 70% growth in the previous year.

So where does Rivian go from here? How its next models come to market will be enormous in determining whether the EV maker can survive. But as far as most experts are concerned, so is figuring out where its next cash infusion comes from.

Rivian recently said it has enough cash to fund operations through 2025. But Jefferies analyst Philippe Houchois estimated last week that Rivian could need $2.5 billion of new capital to kick off R2 production. With interest rates still high and Rivian’s business still a relatively risky bet, any new cash won’t likely come cheap.

So where might it come from? Not predictions, but some ideas:

• Rivian could sell shares, but that would dilute existing shareholders and founders, knocking the stock significantly. Already, Rivian stock is down some 90% from its November 2021 IPO.

• Amazon could consider stepping in. Amazon previously had an exclusive commercial van contract with Rivian (that ended last fall) and owns a 17% stake as the largest shareholder in the EV maker.

• There’s also Ford, which invested $500 million in Rivian before calling off its contract for electric vans during the Covid-19 pandemic.

All said and done, Rivian is taking a big swing: To succeed, it’ll have to survive the heavy losses that come with bringing auto manufacturing to scale. After all, Tesla had to weather at least 13 consecutive years of negative free cash flow before things worked out. If Rivian does survive? 

It could earn its spot among the top EV ranks. Because EVs priced between $40K and $60K account for over one-third of the industry’s battery-powered car sales, according to J.D. Power. With the $45K upcoming R2 (and mysterious surprise R3), Rivian is making a play for the future of EVs.

Do you think it’ll stick around to see that future play out?

This Week’s Episodes of the CDG Podcast

How do you succeed where others have failed? You get creative…and you learn how to profit even when you lose money on every car. This conversation with Eli Hanna, Dealer Principal of Hanna Cars, is loaded with business insights, from expanding your footprint to understanding local markets. Don’t miss it.

This episode has it all: CJ Wilson, Owner and General Manager of Porsche Fresno, tells me all about his career as an MLB All-Star pitcher, his experience racing Miatas with Jimmy John (yes, that Jimmy John), how he acquired his first dealership in the fallout of a divorce, and why he sold cars for bitcoin in 2023. It’s unbelievable. 

Listen to the episodes here, and subscribe to the CDG Podcast on Apple, Spotify, or wherever else you get your podcasts. And thank you to AutoFi and Cars Commerce for making these episodes possible.

Together with Valvoline

Sure, you recognize the name. But did you know Valvoline is so much more than just a lubricant supplier?

For its dealership customers, Valvoline is an integral part of their business. Valvoline supplies world-class products…but also provides hands-on training and expertise, service lane technology, service advisor sales training, marketing support and promotions, and a full portfolio of lubricants and preventive maintenance chemicals.

This means Valvoline provides more value than a typical supplier, allowing dealers to consolidate their fixed-ops vendors and suppliers and focus on moving their business forward.

Click here to get in touch with Valvoline.

Highlights from the CDG Job Board

We’ve got tons of great jobs hitting the CDG Job Board right now. Here are some standouts for anyone looking for their next move.

• Dig all things F&I and ready for something new? JM&A Group is looking for a virtual F&I specialist.

• Eager to put your marketing and creative skills to work? Adpearance is looking for a senior digital strategist for major accounts.

Looking to hire? Add your roles today—it’s 100% free.

The Backlot

• Stellantis is investing 5.6 billion euros (or about $6.1 billion) to launch new vehicles in South America starting next year.

• Drivers spend an average of 20% of their monthly income on car-related expenses like repairs, maintenance, insurance premiums, and loan payments. More or less than you thought?

• A look at how China is whipping up EVs faster than anyone else.

• Tesla’s Autopilot and Full Self Driving tech (plus nine other assisted driving systems) got “poor” ratings from the IIHS in a new study.

• Vehicle software supplier Applied Intuition is now valued close to $6 billion after its latest funding round.

Thanks for reading. In doing some digging on Rivian for today’s edition, I found this polarizing modified Rivian R1T electric pickup. It was put together by Apocalypse Manufacturing and it looks like a tank. Would you drive it?

I’m not so sure. 🤣 Thanks for reading—see you next Thursday.

—Car Dealership Guy

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