Photo: Rivian
Rivian unveiled the R2 compact crossover, and CEO RJ Scaringe pulled a typical Steve Jobs "one more thing" by also showing the R3 and R3X, two smaller crossovers sharing the same platform. While this produced a nice surprise, the announcement was not for the potential customers but for investors. Rivian is in a dire situation, and the R3 announcement seems like a desperate solution to pump the stock in preparation for a capital raise.
Rivian is the second EV startup next to Tesla to have a chance at breaking even and becoming one of the most important EV producers. Their first products, the R1T pickup truck and R1S SUV, were praised by reviewers and buyers alike. Sharing the same platform, the R1T and R1S combined build quality, luxury features, and off-road capabilities, sort of like an electric Range Rover, only better. However, Rivian ignored the harsh economic conditions and botched the production ramp-up, which put the company in dire straits.
In the post-pandemic years, the chip crunch and supply chain nightmares crushed Rivian's hopes despite having great products. Production ground to a halt, while the company started burning cash at an unsustainable rate. However, instead of acknowledging the new situation, the company's management continued with the initial plans, announcing a new factory in Georgia. Tesla's Elon Musk harshly criticized the move as someone who went through production hell and knew how hard overcoming such situations could be.
To its credit, Rivian weathered the storm after taking steps to boost production efficiency. Some were painful, like trimming staff. Others provided a solid foundation for future growth, like optimizing its vehicle architecture and producing more parts in-house. Or so everyone thought, seeing production ramping up nicely in 2023. To be fair, there was always a sign that the R1 demand might have peaked based on more vehicle trims becoming available in inventory.
As Elon Musk warned two years ago, Rivian must break even on its current products if it wants to be around long enough to start R2 production. Cutting the Rivian workforce by 10 percent, dropping one shift at its Normal, Illinois factory, and optimizing the R1 architecture are all necessary steps to limit the money hemorrhage threatening the company's future. Rivian went even further after the R2 and R3 unveiling, announcing that it paused plans for its second factory in Georgia.
However, RJ Scaringe did not say this on record during the unveiling but merely announced that R2 production will start in Illinois instead of Georgia. Rivian's CEO said the reasons were to speed up production start and reduce development costs, although the R2 is still planned to arrive in 2026. This is a good decision, although it comes too late. Rivian shouldn't have wasted precious resources on the Georgia factory and instead focused on making the Illinois factory profitable first.
Don't get me wrong, the R2 is a beautiful vehicle and would probably be a hit if launched this year or the next. Like Rivian's first vehicles, it has a lot to offer, and it's, on paper, at least, better than the Tesla Model Y. But by the time it arrives in 2026, it might already be too late, and the Model Y will already have the Juniper refresh in the market. Rivian needs to sell a lot more R1 vehicles and make money on them if it wants to even have a chance at starting R2 production.
However, Rivian announced not just the R2 but also the R3 and R3X. This is like Tesla announcing the Model 3, Model Y, and the Cybertruck at the same time as it tried to stay afloat in 2016. However, Tesla had no competition for the Model S and Model X then, and they reached peak sales when Tesla needed them the most. That's not the case with Rivian and its R1S/R1T duo. They cannot sustain the R2 ramp-up and would certainly not be able to support the R3 and R3X either.
This is why people who jumped to say that Rivian beat Tesla in offering a compact EV got it all wrong. Rivian may have shown what looked like a working R3 prototype, but that vehicle is as illusory as Apple's driverless pods. All we know about it is that it would come at some point in the future after the R2 launches in 2026 (hopefully). By that time, Tesla's compact EV should already be in production, even with all the delays that are expected from Tesla.
The R2 reservation opening and the R3 and R3X announcement are all steps to pump the stock as Rivian prepares to raise more money. It needs to brag about a sizeable number of reservations to lure investors, and this usually peaks in less than a week after opening the process. It also requires the stock to trade as high as possible, which the announcement already accomplished (RVN up 15% after the conference). This might go higher for a day or two but will eventually stop.
This is why I think Rivian will announce a new investment round in less than a week. It's the only way it could survive the next couple of years. Make no mistake, the R3 announcement was just the plan Rivian showed investors. We can all agree that this is a good plan, given that the R2 and R3 share many parts, and adding the compact EV to the lineup should be trivial. Hopefully, Rivian will stay focused and execute its strategy with utmost precision because the car market needs another successful EV maker.
In the post-pandemic years, the chip crunch and supply chain nightmares crushed Rivian's hopes despite having great products. Production ground to a halt, while the company started burning cash at an unsustainable rate. However, instead of acknowledging the new situation, the company's management continued with the initial plans, announcing a new factory in Georgia. Tesla's Elon Musk harshly criticized the move as someone who went through production hell and knew how hard overcoming such situations could be.
To its credit, Rivian weathered the storm after taking steps to boost production efficiency. Some were painful, like trimming staff. Others provided a solid foundation for future growth, like optimizing its vehicle architecture and producing more parts in-house. Or so everyone thought, seeing production ramping up nicely in 2023. To be fair, there was always a sign that the R1 demand might have peaked based on more vehicle trims becoming available in inventory.
Rivian is in a dire situation
However, Rivian's Q4 2023 earnings call crushed all hopes that 2024 would continue on the same positive trend as 2023. CEO RJ Scaringe offered a bleak picture, with toned-down production guidance and a precarious financial situation. Despite having relatively large cash reserves (about $10 billion at the end of 2023), the company was burning more than $1.5 billion per quarter, which means it doesn't have enough to make it through 2026 when the R2 volume EVs are supposed to provide a lifeline.As Elon Musk warned two years ago, Rivian must break even on its current products if it wants to be around long enough to start R2 production. Cutting the Rivian workforce by 10 percent, dropping one shift at its Normal, Illinois factory, and optimizing the R1 architecture are all necessary steps to limit the money hemorrhage threatening the company's future. Rivian went even further after the R2 and R3 unveiling, announcing that it paused plans for its second factory in Georgia.
However, RJ Scaringe did not say this on record during the unveiling but merely announced that R2 production will start in Illinois instead of Georgia. Rivian's CEO said the reasons were to speed up production start and reduce development costs, although the R2 is still planned to arrive in 2026. This is a good decision, although it comes too late. Rivian shouldn't have wasted precious resources on the Georgia factory and instead focused on making the Illinois factory profitable first.
Make no mistake, Rivian is not Tesla
While cutting costs wherever possible is a sensible decision, starting new product lines before breaking even on the R1 production is a suicide gesture. Rivian wanted to show the world its future electric vehicle, the R2, but doing it so early was probably not the wisest choice. This can hurt its current lineup as people defer the purchase and wait for the new model. If the R2 production is not going well in 2027 and R1 demand tanks, Rivian will again be in a very uncomfortable position.Don't get me wrong, the R2 is a beautiful vehicle and would probably be a hit if launched this year or the next. Like Rivian's first vehicles, it has a lot to offer, and it's, on paper, at least, better than the Tesla Model Y. But by the time it arrives in 2026, it might already be too late, and the Model Y will already have the Juniper refresh in the market. Rivian needs to sell a lot more R1 vehicles and make money on them if it wants to even have a chance at starting R2 production.
However, Rivian announced not just the R2 but also the R3 and R3X. This is like Tesla announcing the Model 3, Model Y, and the Cybertruck at the same time as it tried to stay afloat in 2016. However, Tesla had no competition for the Model S and Model X then, and they reached peak sales when Tesla needed them the most. That's not the case with Rivian and its R1S/R1T duo. They cannot sustain the R2 ramp-up and would certainly not be able to support the R3 and R3X either.
This is why people who jumped to say that Rivian beat Tesla in offering a compact EV got it all wrong. Rivian may have shown what looked like a working R3 prototype, but that vehicle is as illusory as Apple's driverless pods. All we know about it is that it would come at some point in the future after the R2 launches in 2026 (hopefully). By that time, Tesla's compact EV should already be in production, even with all the delays that are expected from Tesla.
New investment round coming
Many wondered what was with this "one more thing" that Rivian CEO RJ Scaringe felt was needed. And the only logical conclusion is that Rivian is preparing to raise capital. This is the only reason you would fire all bullets, although you know you might need them later. It's a survival battle, and you might not get to shoot them at all. So it's now or never, which is also why Rivian started reservations for the R2 two years before the planned launch.The R2 reservation opening and the R3 and R3X announcement are all steps to pump the stock as Rivian prepares to raise more money. It needs to brag about a sizeable number of reservations to lure investors, and this usually peaks in less than a week after opening the process. It also requires the stock to trade as high as possible, which the announcement already accomplished (RVN up 15% after the conference). This might go higher for a day or two but will eventually stop.
This is why I think Rivian will announce a new investment round in less than a week. It's the only way it could survive the next couple of years. Make no mistake, the R3 announcement was just the plan Rivian showed investors. We can all agree that this is a good plan, given that the R2 and R3 share many parts, and adding the compact EV to the lineup should be trivial. Hopefully, Rivian will stay focused and execute its strategy with utmost precision because the car market needs another successful EV maker.
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