140 degrees
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- Joined
- Mar 14, 2022
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- Location
- Auburn, CA
- Vehicles
- BMW i3, Rivian R1T
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- #1
Since Rivian’s last earnings report, there has been much wailing and gnashing of teeth. Clearly the sky is falling. Or is it?
You might be surprised if I reveal that I feel more positive about Rivian’s situation than I did 6 months ago. All of this is predicated on my opinion that while the ramp up of Electric Vehicles may be slower, it will still happen. Let me explain my reasoning. Rivian's situation has changed in important ways.
1. Tesla didn’t deliver the Cybertruck that they promised. If they had introduced a $40K entry price for a 400 mile range as expected by some, Rivian would be in a world of hurt. Instead, the entry level RWD Cybertruck is $61K, to be delivered in two years, with an expected range of 250 miles. Also, Rivian’s R1T has better efficiency than Tesla’s Cybertruck. In some important ways, it is Tesla that is playing catch-up. Not what I expected.
2. The reduction in demand for EVs came at exactly the right time for Rivian. Some analysts opine that a reduction in demand is bad for all vendors, IMHO this is not true.
Rivian’s competition is stepping on the brakes. Ford announced they are cutting Lightning production from 3200/wk to 1600/wk. Ford delayed the Explorer EV launch to next year, and delayed the Bronco and Maverick EVs until the early 2030s. GM is having trouble producing Ultium batteries, they have delayed the Silverado and Sierra by a year. Stellantis is late to the market, but appears to have a strong offering.
This is important because Rivian has been negotiating with vendors for the R1 refresh and R2 introduction at the same time that many of the industry’s suppliers are having orders canceled by Rivian's competition. There is a lot of excess capacity right now. Battery prices just hit record lows. Prices are roughly 25% less than in 2019. In the conference call, it was mentioned several times that contracts were renegotiated for R1 production, using R2 volumes as leverage.
During the call, they forecast flat production while still achieving a modest net profit per vehicle. This is much better than getting to break-even by primarily increasing volume. If the volume needed for break-even is lower, the profit at full production should be higher.
If your reaction to the competition pulling back is negative, read the Innovator’s Dilemma by Clayton Christensen. Large entrenched companies have a hard time dealing with change that threatens their profitable product lines.
3. A good development team pulls risk forward when possible. By introducing the updated ECU architecture and vendor changes in this year’s R1 refresh, they are completing some of the riskier parts of the R2 development while gaining some of the cost reduction benefits. They will have two years of experience with the new distributed ECU architecture when the R2 comes to market. This could be much better than the example set by the Cybertruck, where software functions like traction control are MIA.
Normally, in a product development process, the composition of the team changes as progress is made. In a big company, these exempt employees just move to another project. I think that Rivian might not be diverse enough in terms of new project development to absorb the vendor management, component qualification, and design engineers who have finished their work. None of us like layoffs, but Rivian must run a lean company. These layoffs could actually be a sign of positive progress.
This post is already longer than I intended, so I’ll stop here. I’m interested in your reactions, both positive and negative.
You might be surprised if I reveal that I feel more positive about Rivian’s situation than I did 6 months ago. All of this is predicated on my opinion that while the ramp up of Electric Vehicles may be slower, it will still happen. Let me explain my reasoning. Rivian's situation has changed in important ways.
1. Tesla didn’t deliver the Cybertruck that they promised. If they had introduced a $40K entry price for a 400 mile range as expected by some, Rivian would be in a world of hurt. Instead, the entry level RWD Cybertruck is $61K, to be delivered in two years, with an expected range of 250 miles. Also, Rivian’s R1T has better efficiency than Tesla’s Cybertruck. In some important ways, it is Tesla that is playing catch-up. Not what I expected.
2. The reduction in demand for EVs came at exactly the right time for Rivian. Some analysts opine that a reduction in demand is bad for all vendors, IMHO this is not true.
Rivian’s competition is stepping on the brakes. Ford announced they are cutting Lightning production from 3200/wk to 1600/wk. Ford delayed the Explorer EV launch to next year, and delayed the Bronco and Maverick EVs until the early 2030s. GM is having trouble producing Ultium batteries, they have delayed the Silverado and Sierra by a year. Stellantis is late to the market, but appears to have a strong offering.
This is important because Rivian has been negotiating with vendors for the R1 refresh and R2 introduction at the same time that many of the industry’s suppliers are having orders canceled by Rivian's competition. There is a lot of excess capacity right now. Battery prices just hit record lows. Prices are roughly 25% less than in 2019. In the conference call, it was mentioned several times that contracts were renegotiated for R1 production, using R2 volumes as leverage.
During the call, they forecast flat production while still achieving a modest net profit per vehicle. This is much better than getting to break-even by primarily increasing volume. If the volume needed for break-even is lower, the profit at full production should be higher.
If your reaction to the competition pulling back is negative, read the Innovator’s Dilemma by Clayton Christensen. Large entrenched companies have a hard time dealing with change that threatens their profitable product lines.
3. A good development team pulls risk forward when possible. By introducing the updated ECU architecture and vendor changes in this year’s R1 refresh, they are completing some of the riskier parts of the R2 development while gaining some of the cost reduction benefits. They will have two years of experience with the new distributed ECU architecture when the R2 comes to market. This could be much better than the example set by the Cybertruck, where software functions like traction control are MIA.
Normally, in a product development process, the composition of the team changes as progress is made. In a big company, these exempt employees just move to another project. I think that Rivian might not be diverse enough in terms of new project development to absorb the vendor management, component qualification, and design engineers who have finished their work. None of us like layoffs, but Rivian must run a lean company. These layoffs could actually be a sign of positive progress.
This post is already longer than I intended, so I’ll stop here. I’m interested in your reactions, both positive and negative.
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