International Finance
Business LeadersFeatured

Business Leader of the Week: After receiving Volkswagen investment, RJ Scaringe-led Rivian eyes first profit

IFM_RJ Scaringe
RJ Scaringe had a deep affection for the automobile manufacturing process, and has always detested the fact that cars contribute significantly to environmental pollution

RJ Scaringe, the CEO of Rivian, recently took a step that will probably catch investors’ attention. On June 10, RJ Scaringe sold 71,429 shares of the business for about USD 821,000. Although this move may draw criticism, it should serve as a helpful reminder to investors that there are other reasons besides losing faith in the company that can lead someone to sell their stocks.

For instance, RJ Scaringe might have sold the stock, if it reached a short-term price objective. When he completed the sale on June 10th, Rivian stock increased by more than 18%. He might have desired to diversify his holdings for a variety of reasons, including tax considerations.

Meanwhile, Rivian has eliminated over 500 parts from the design of its flagship SUVs and pickups, 52 pieces of equipment from the body shop, and over 100 steps from the battery-making process in an effort to save costs and turn a profit.

RJ Scaringe told Reuters that Rivian’s retooling of its manufacturing process resulted in savings of “similar magnitude” for its other lines and a 35% reduction in the cost of materials for vans.

“Rivian’s overall cost of building its EVs has improved dramatically. The design of the parts and the design of the plant facilitate making the vehicle easier to build,” RJ Scaringe said, during a factory tour, at Normal, Illinois.

Profit Becomes The Key Buzzword

Media agency Reuters got an exclusive look inside Rivian’s four-million-square-foot factory, with investors eager to learn more about the size and pace of savings after a three-week shutdown in April 2024.

“Cutting cost is critical for Rivian and other electric vehicle start-ups as high interest rates have turned some potential customers off EVs that are typically more expensive to buy than their gasoline-powered counterparts,” the media outlet noted further.

For Rivian, the challenge is steeper, because it has never turned a quarterly net profit since its formation in 2009 and lost USD 1.5 billion in the first quarter of 2024.

“We did a similar process of really going through and redesigning a number of components for cost, so we took over 35% of the material cost out of the vans,” RJ Scaringe noted, referring to a shutdown of the van line in 2023.

Built primarily for major shareholder Amazon, Rivian’s vans account for about one-fifth of its revenue. EV market leader Tesla, on the other hand, is surviving the high interest rate-related fallouts by continuously slashing prices. However, smaller EV makers, including Fisker, have filed for bankruptcy. Compared to its industry peers, Rivian has been on more solid ground financially, but currently losing nearly USD 39,000 on every vehicle and is banking on cost savings to turn profitable in 2024.

Apart from having a simplified assembly line and less manufacturing equipment at the plant, changes are also flowing into the second generation of Rivian’s R1 vehicles with company-built drive units, upgraded software and new battery packs. Making those battery packs have become easier as the modules are getting redesigned and coming in one piece instead of walls and floors that were built separately.

The new architecture of R1 line-up is also reducing the vehicle’s weight, apart from improving the overall manufacturing efficiency, including shedding 1.6 miles of wiring from each vehicle. These changes have reportedly reduced the labour time and pushed the assembly rate up by about 30%.

However, investors are worried, given the fact that the plant’s shutdown has resulted in Rivian’s yearly vehicle production target remaining at 57,000, almost the same as 2023, and shares in the company have halved so far in 2024.

Cash and short-term investments fell by about USD 1.5 billion in the first quarter to just under USD 8 billion. Rivian had said it has enough capital to launch the less expensive and smaller R2 SUVs in early 2026.

Sam Fiorani, vice-president at research firm AutoForecast Solutions, who had expected the company to require a cash infusion before summer 2025, told Reuters that the vehicle cost reduction should give Rivian some breathing room.

“Focusing on where the cost savings are is extremely important to the longevity of the company and to calming the fears of any investors,” Fiorani told further.

To quicken the deliveries of the R2 series (USD 45,000 worth five-seater SUVs), Rivian will start its production activities in its Illinois plant, which will be expanded further, instead of at a planned USD 5-billion plant in Georgia. The move will save another USD 2 billion.

Meet RJ Scaringe

RJ Scaringe had a deep affection for the automobile manufacturing process, and has always detested the fact that cars contribute significantly to environmental pollution. He first discovered his passion for automobiles and the automotive industry while working at a Porsche restoration shop in Florida. His intention when he enrolled at MIT was to study vehicle efficiency optimisation.

He held positions with several sizable automotive companies following his doctorate. He quickly realised that, given the structure of large organisations, there was a lack of flexibility and poor efficiency.

“I realised that I could have more impact by actually starting something on my own,” RJ Scaringe said, as reported by the website build.

In the process of changing how people buy and own cars, RJ Scaringe also aimed to transform how society views transportation and how we treat the environment. In order to eliminate the conventional barriers between silos and promote systems-level thinking, he intended to completely revamp the organisation.

As a result, RJ Scaringe continued to concentrate on beginning with a blank slate and redefining the architecture and the vehicle. It took some time to get off the ground when he started Rivian with fewer than twenty people.

However, the team started to expand once positive relationships with shareholders and investors were established. Global investors, including tech behemoths like Amazon, were drawn to Rivian because of its inventiveness and ability to leverage technology to propel advancements in an otherwise stagnant industry. Rivian had raised over USD 31 billion for their first electric and semi-autonomous pickup truck model in 2020.

JV With Volkswagen: Potential Game Changer

Rivian and Volkswagen Group have announced their plan to establish a joint venture (JV) with equal control and ownership to develop cutting-edge software technology and next-generation electrical architecture. It is expected that the collaboration will quicken the software development process for Rivian and its German partner.

It is anticipated to enable both businesses to combine their complementary advantages and reduce cost per vehicle by expanding globally and accelerating innovation. Future software development in the joint venture is anticipated to be built upon Rivian’s validated in-market zonal hardware design and integrated technology platform, which will be implemented into the vehicles of both companies.

In addition to providing its knowledge of electrical architecture, Rivian anticipates licensing its current intellectual property rights to the joint venture. The joint venture will also give Volkswagen Group access to Rivian’s current software platform and electrical architecture soon. The goal of the collaboration is to move toward a pure zonal architecture and expedite VW Group’s SDV plans. Every company will keep running its car businesses independently.

Rivian’s shares also surged about 36% immediately after the announcement of the USD 5 billion investment from Volkswagen, as the analysts and investors now see the deal providing the loss-making start-up more financial firepower (in terms of arresting the depleting cash reserves) to roll out new models to attract consumers in a slowing EV market.

The fact of Rivian-Volkswagen JV sharing each other’s EV architecture and software that could eventually be used by the German automaker’s brands including Audi, Porsche and Lamborghini, makes the deal a win-win one for both the players.

Since the deal-s announcement, over 80 million Rivian shares exchanged hands, more than twice its 30-day average trading volume. The stock also had its best day on record if gains hold, apart from being the top trending stock on the retail trader platform StockTwits.

“It’s a big vote of confidence in the EV maker’s prospects. Joining forces in this way may also help lower the cost-per-vehicle and bolster defences against the growing might of Chinese EV makers,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, told Reuters.

Volkswagen’s investment would also provide Rivian with the funding necessary to develop its less expensive R2 SUVs and its planned R3 crossovers.

Rivian was set to add over USD 4 billion to its market value of USD 12 billion, a solid comeback after the setback earlier 2024, where the venture’s stock lost nearly half of its value after Rivian said that it was not expecting to produce more vehicles in 2024. It also scrapped previous deals to make EVs and commercial vans under separate joint ventures with Ford in 2021 and Mercedes Benz in 2022.

What's New

Start-up of the Week: Introducing Avenue One, redefining real estate investment in US

IFM Correspondent

EU new car sales rise 4.3% in June 2024, says auto industry body

IFM Correspondent

Growth in MENA region to reach 2.2% in 2024: IMF

IFM Correspondent

Leave a Comment

* By using this form you agree with the storage and handling of your data by this website.