Here is the case to analyse: Rivian Automotive, Inc.

"The change over the next two decades from non-connected, combustion-powered vehicles to electric, con-

nected, and increasingly autonomous vehicles is a massive shift, larger than the shift from the horse to the car

(that began 130 years ago)."

RJ Scaringe, Founder and CEO of Rivian1

The Scaringe family was excited about their weekend getaway. It had been a stressful few weeks. With a range of

up to 400 miles on a single charge, the Rivian R1T served the Scaringe family well in exploring remote areas of the

Grand Teton National Park in Wyoming. As they were preparing breakfast using the pull-out camp kitchen in their

new truck, RJ and his spouse, Megan, were happy that the vehicle's battery pack supplied sufficient power to keep

the temperature comfortable as they were sleeping in the tent that comes with the truck. Their three children were

even more excited that the new satellite-based Starlink connection provided fast enough internet speeds to use their

Oculus Quest 2 virtual-reality headsets for multiplayer online games without noticeable latency. And RJ and Megan

were able to use their phones to address pressing work issues.

RJ Scaringe is the founder and CEO of Rivian, which designs, develops, and manufactures fully-electric pickup

trucks, sport utility vehicles (SUVs), and commercial delivery vans. Rivian's vision is "to keep the world adventurous

forever."2

The mission includes producing zero-emission adventure vehicles that empower people to enjoy the great

outdoors without polluting the environment. Some observers nicknamed Rivian the Patagonia of electric vehicles

(EVs) because of its focus on ecological sustainability. It manifests by producing category-defining and zero-emis-

sion utility vehicles and attention to detail, such as using vegan leather3

for the interior and recycled plastic bottles

for the car's headliner. RJ Scaringe also donated 1% of the company's equity to the Forever Foundation, a philan-

thropic foundation established by Rivian to address climate change and preserve biodiversity, thus making the Earth

a stakeholder in Rivian's success.4

As RJ was trying to enjoy some quality family time in a stunning setting of outdoor beauty, he couldn't help but

think about his company's initial public offering (IPO) just over a year ago. On November 10, 2021, Rivian had its

IPO, going public at $78 per share, with a market cap of $67 billion. A few days later, Rivian's market cap peaked at

$153 billion (Exhibit 1). Rivian's market cap was almost as high as the combined valuation of the legacy carmakers

GM ($91 billion) and Ford ($79 billion). To put Rivian's stock market valuation in perspective, the year the electric

vehicle startup went public (2021), it produced just over 1,000 vehicles. Combined, GM and Ford sold 10 million

cars, 10,000 times more than Rivian.From its peak, Rivian's market capitalization had fallen to $18 billion, down almost 90%. In 2022 alone, Rivian's

stock had dropped 82% while the tech-heavy Nasdaq-100 index had fallen by 34%. What bothered RJ Scaringe was

that his company's stock had dropped 48 percentage points more than the Nasdaq-100, an important benchmark for

tech ventures. To make matters worse, in the first nine months of 2022, Rivian lost over $5 billion, bringing the new

venture's total losses to more than $11 billion (Case Exhibits 2 and 3).

CEO Scaringe had initially promised that Rivian would produce 50,000 adventure vehicles in 2022. However, in

spring 2022, the CEO needed to backtrack and adjust the number to 25,000 vehicles. Even after cutting Rivian's

production forecast by half, the company fell short. In total, Rivian delivered 24,337 vehicles in 2022 (Exhibit 4). At

the same time, RJ Scaringe has announced that Rivian will produce 50,000 vehicles in 2023. Given persistent supply

chain challenges post-pandemic combined with an adverse macro environment because of high inflation and reces-

sionary pressures, he was fretting about how to more than double production in 2023.

Looking through his Twitter feed, he saw disgruntled customers asking when they will get their vehicles. RJ is

thinking about the 114,000 people that put down deposits for a Rivian EV. Some of them will have to wait two years

before he can deliver their vehicles. He also got an email from Udit Madan, Amazon's VP of transportation, asking

how many last-mile vans they can expect to be delivered in 2023. All these worries made it difficult for RJ Scaringe

to enjoy his family getaway ...

RJ Scaringe, Rivian Founder and CEO

As long as he can remember, automobiles have been Robert Joseph (RJ) Scaringe's passion. Growing up on

Florida's Space Coast surrounded by engineers, the young RJ loved helping his neighbor rebuild vintage sports cars

in his garage. During his formative years, RJ became deeply involved in car mechanics and the technical develop-

ment of the automobile over the last 100 years. By the time he graduated from high school, RJ's passion had crystal-

ized into a vision: He wanted to start a car company. Following in his father's footsteps (he obtained bachelor,

master's, and doctoral degrees in mechanical engineering from the Rensselaer Polytechnic Institute in upstate New

York), RJ also studied mechanical engineering at RPI.

After completing his undergraduate degree with a perfect GPA and at the top of his class, he enrolled in graduate

school at the Massachusetts Institute of Technology (MIT), where he pursued masters and doctoral degrees in

mechanical engineering. The MIT Sloan Automotive Research Lab is the leading automotive program in the United

States. It is supported by and integrated with original equipment manufacturers (OEMs) such as Ford and GM. The

OEMs contract with the MIT Lab to conduct sponsored research and exchange engineering talent. As such, MIT

graduate students and OEM engineers work together on technical problems that the automakers face at MIT and

onsite with the OEMs. Enrolling at MIT for his graduate studies was a strategic move by RJ Scaringe because he

knew it would provide the best research training in automotive technology, and the MIT pedigree would help him

start his company.

During his graduate studies, RJ Scaringe realized that the current transportation system contributed to climate

change and was not sustainable. What was needed, he concluded, is a zero-emission transportation system thatwould work effectively, without environmental impact 100 or even 200 years from now. RJ Scaringe became con-vinced that the current, carbon-based transportation system based on internal combustion engines (ICE) leads to allkinds of problems, such as smog and pollution in metropolitan areas, geopolitical conflict, and climate change. He

became obsessed in his quest for a low or even zero-emissions vehicle that would be a superior product and enticepeople to choose it over the best ICE vehicles on the market. Brief History of Rivian Automotive, Inc.

In 2009, the day after RJ Scaringe graduated from MIT, at age 26, he founded a car company. RJ decided to start

an automotive company because he realized during graduate school that system-level innovation is impossible at a

large, established automotive company. RJ felt that the probability of succeeding as a startup with no team, money,

experience, or supply chain was higher than achieving system-level innovation at an OEM. As such, he firmly believes

that pure-play EV companies such as Rivian and Tesla are much better positioned than legacy carmakers to lead in

the transformation from ICE automobiles to EVs.

Not having a proper name for the new venture, he used the placeholder Mainstream Motors. Later, he settled on

the name of Avera, which is a portmanteau of verde and terra, meaning Green Earth. Shortly after, the Korean auto-

maker Hyundai sued Avera for copyright infringement because one of the vehicles in their lineup was called Azera,

arguing that Avera was too close to Azera. Not having the resources to take on a legal fight, RJ dropped Avera. In

2011, RJ and his engineers settled on Rivian for their car company. The name Rivian resulted from blending and

abbreviating the words Indian River, using the first three letters of river ("Riv") and the last three letters of Indian

("ian") to combine as Rivian. RJ Scaringe loves the name Rivian as it denotes flowing water and nature. It also

reminds him of the area he and several founding engineers grew up in (Indian River, Florida), and it can be pro-

nounced in any language without a specific meaning.

INITIAL FUNDING

Funding the new venture proved to be an almost insurmountable obstacle. The timing of starting a new car com-

pany at the height of the global financial crisis (in 2009) could not have been worse. Indeed, both GM and Chrysler

went bankrupt in the wake of the financial crisis and had to be bailed out with billion-dollar loans by the federal

government. Unlike software startups such as app developers, which need little funding and can blitz scale, car

manufacturing requires billions of dollars and a multi-year time horizon before any revenues, let alone profits, can be

realized. As such, the venture capital system is not set up to fund startups with massive upfront capital outlays and a

decade-long time horizon before any proceeds are realized.

Not surprisingly, every venture capitalist (VC) up and down Sand Hill Road turned RJ down. And banks wouldn't

even return his phone calls. After every pitch, RJ heard the same concerns expressed by VCs, who summarized his

presentation: "So, you have no prototype, no minimal viable product to assess market fit, no team, no factory, no

supply chain, no experience, and no money. You have nothing other than a lofty idea. You are asking for billions of

dollars and for us to wait a decade or longer before any returns may materialize. We don't think so."

To turn his dream into a reality, RJ needed at least one billion dollars at least a decade before his envisioned car

company could make any money. Most people would have given up at this point. Not RJ. Dreaming of being an

entrepreneur since childhood, RJ started saving money early on. While in high school, he worked two jobs during

the summer months: a day job as a machinist and a second job in restaurants at night and on weekends. RJ saved up

enough money to buy a house while still in high school. The equity he built allowed him to take out a loan against his

home, which he used as initial funding for his startup. His father also believed in RJ's vision and took a second mort-

gage on the family home to support his son's entrepreneurial venture. RJ began the arduous journey of building a car

company with no other financial support.

After returning home to Florida, he set out to build a high-performance but super-efficient hybrid sports car

that could get 100 miles per gallon (Exhibit 5). With a few friends, they were able to bootstrap a prototype within

two years that came close to their initial performance metrics. Yet, as soon as the prototype was completed, RJ realized that this car was not what was needed to solve the transportation system problem he had identified in

graduate school. The day after the team completed the prototype, rather than thinking about scaling up for produc-

tion, RJ decided to pivot the company toward solving the transportation problem. Still, he wasn't sure in which

direction to pivot.

PIVOT TOWARDS ELECTRIFICATION AND ADVENTURE VEHICLES

In the meantime, Tesla had prototyped several iterations of the original Roadster, a high-performance EV sports

car. Indeed, Tesla began delivering the Roadster to customers in 2008. Although it was far from clear during that

time that electrification would be the next automotive propulsion paradigm, RJ realized that it had the most prom-

ise. While he recognized that electrification was the future of transportation, he also concluded that there was no

need for another EV sports car, given Tesla's lead.

In 2012, RJ pivoted the company towards electrification and decided to make an SUV and a pickup truck. While

there is some consensus today that electrification will be the next paradigm for vehicle propulsion, it was a crazy

idea at the time. RJ Scaringe was laughed out of the room when proposing his ideas at industry conferences. He

considered this a good sign because he believed that the audience's laughter revealed that no one had thought hard

enough about electrifying SUVs and pickup trucks. RJ Scaringe views the electrification of SUVs and pickup trucks

as a massive opportunity. He concluded that SUVs and pickup trucks are the least efficient cars on the road, so he

could make the most progress in creating a carbon-free transportation system with battery-powered pickup trucks

and SUVs.

Moreover, pickup trucks and SUVs are legacy carmakers' most profitable, high-margin vehicles. And they are the

most popular type of vehicle in North America. Indeed, Ford's F-150 pickup truck is the bestselling car in the U.S.,

with over 40 million units sold since the inception of the F-series in 1948. Finally, current ICE pickup trucks and

SUVs make a lot of design and engineering compromises. For instance, they are super inefficient ("gas guzzlers"),

they don't ride as smoothly as a sedan or accelerate like a sports car, have no trunk space, are unsafe vehicles (espe-

cially in a rollover accident), and so forth. RJ identified and cataloged all these weaknesses and turned them into

strengths with Rivian's R1T pickup truck and the R1S SUV. He set out on his quest to break the old F-150 pickup

truck paradigm.

STEALTH MODE AND OUTSIDE INVESTORS

Between 2012 and 2018, Rivian went into stealth mode. The startup disappeared from public view and went com-

pletely dark, it didn't even have a website, and none of the engineers talked to anyone externally. The goal was to

develop new adventure vehicles from the ground up without any external interference and distraction. The intent was

to overcome the taken-for-granted design and engineering compromises that had defined utility vehicles for the past

70 years, thus severely limiting the capabilities of existing pickup trucks and SUVs. The overriding aim was to create

new category-defining, zero-emission adventure vehicles that outperformed any existing pickup truck and SUV on all

critical dimensions.

Yet, Rivian needed a significant amount of funding to pivot toward the electrification of utility vehicles. Since

venture capitalists, angel investors, or banks were not an option, RJ turned to the MIT leadership and requested

contacts with wealthy alums. In 2012, RJ met with fellow MIT alum Abdul Latif Jameel, who heads a family-owned

diversified business in Jeddah, Saudi Arabia. Abdul Latif Jameel believed in RJ's vision and became the first outside

investor in Rivian, taking an equity stake of 12.7% for $1 million. With the initial funding secured, Rivian opened a research facility in Michigan, a software development office in

Palo Alto (Bay Area), and a design studio in Irvine (Southern California). The Rivian team of 10 engineers moved

from Florida to Ypsilanti, Michigan. Since money was tight, they all lived in the same house. The new location was

ideal because it is in the middle of an automotive cluster. It is close to the University of Michigan with cutting-edge

researchers and engineers and Detroit with R&D centers of large carmakers and numerous automotive suppliers.

Lastly, the location is also home to the world's leading pickup truck and SUV manufacturers, GM and Ford.

After the initial funding from Abdul Latif Jameel and progress in prototyping, Rivian was able to attract further

funding from British (Standard Chartered, a bank) and Japanese investors (Sumitomo Corporation, one of the

world's largest general trading companies). The additional funding allowed Rivian to purchase a retired Mitsubishi

car manufacturing plant in Normal, Illinois. Intending to make it their first manufacturing hub in North America,

Rivian retooled the factory from the ground up to mass produce EV pickup trucks, SUVs, and commercial vans.

Having some funding and being shielded from external influences, Rivian engineers went through many iterations

to perfect the R1T and R1S prototypes. Yet, despite making progress in fundraising, Rivian remained severely under-

capitalized. The financial situation of the EV startup was so tenuous that automotive suppliers would not extend

credit or even work with Rivian. Not being able to purchase off-the-shelf products forced RJ Scaringe to bring elec-

tronics development and writing software code in-house. Over time, Rivian turned these weaknesses into strengths,

forcing the company to be creative on a shoestring budget. RJ Scaringe attributes some of the best innovations Riv-

ian came up with as the result of in-house development under constraints.

2018 LA AUTO SHOW: RIVIAN'S COMING OUT PARTY

After six years in stealth mode, Rivian had it's coming out party at the 2018 Los Angeles Auto Show to great

fanfare. By that time, Rivian had some 800 employees and could focus exclusively for several years on developing two

fully functional prototypes: The R1T (T for a truck) and the R1S (S for an SUV). See Exhibit 6 for vehicle specs.

Industry observers were astonished at the quality and performance specifications of the vehicles. They wondered

aloud where that company had come from without anyone noticing. They were also impressed with Rivian's skate-

board technology equipped with quad electric motors, one for each wheel (see section Skateboard Platform).

RJ Scaringe was ready to come out of stealth mode. Although, it had allowed Rivian to focus on prototype devel-

opment without too many external distractions, remaining in stealth mode morphed from being an asset to a liabil-

ity. Without a website, social media, press coverage, or engineers being allowed to speak about their work, it became

increasingly difficult to recruit the best talent, and suppliers did not want to work with a company that had no

external visibility.

A second reason that convinced RJ Scaringe that the LA Auto Show was the right time to come out was that

Amazon had decided to invest $700 million for an 18.1% equity stake in the company. In addition, Amazon con-

tracted for 100,000 electric delivery vans from Rivian. Combining the equity stake and the value of the contract for

the commercial vans, Amazon invested more than $1.3 billion into Rivian. While Rivian and Amazon had inked

their agreements before the LA Auto Show, they had not yet been publicly announced. This partnership allowed RJ

Scaringe and Rivian to come to Los Angeles with confidence even beyond what the level of the two nearly perfect

EV prototypes of the new adventure vehicles afforded him.

The splash that Rivian made at the LA Auto Show had two immediate benefits. First, although customers would

have to wait three years before deliveries would commence, tens of thousands of preorders for the R1T and R1S

rolled in, with future owners putting down deposits to secure their slot on the waiting list. Second, other investors

signed on after the Amazon deal was announced a few weeks after the auto show (in early 2019). In the same year, Ford made a $500 million investment to buy an 11.4% equity stake in Rivian and to pursue the

co-development of electric vehicle technology. The co-development agreement intended that Ford use Rivian's skate-

board technology for its all-electric Lincoln SUV. A few weeks after being appointed Ford CEO, Jim Farley termi-

nated the deal with Rivian stating that Ford would go EV development alone. In particular, Ford would not use

Rivian's skateboard technology for the much anticipated F-150 Lightning, the new EV version of the iconic F-150

pickup truck. In addition to Amazon and Ford, other investors in Rivian after the LA Auto Show included T. Rowe

Price (an investment management firm) and Cox Automotive (an automotive services organization).

Still a private company, by the end of 2019, Rivian had raised a total of $3.5 billion, with $2.9 billion in 2019

alone. Rivian's IPO in 2021 was the largest of that year, with the EV startup raising close to 14 billion. Within two

years, Rivian changed from an undercapitalized and scrappy startup to a well-capitalized manufacturer of premium

adventure vehicles and commercial vans. And it kept growing. By the end of 2022, Rivian had 13,000 employees.

Rivian's Product and Services Lineup

As of 2022, Rivian produces three primary vehicles, the R1T, the R1S, and the EDV (electric delivery van, a com-

mercial offering), which come in three different sizes. Rivian stands out among EV pure plays by attempting to

develop consumer and commercial vehicles simultaneously. Other essential products and services include its skate-

board platform, charging network, fleet management, and subscription services.

R1T

The R1T is Rivian's pickup truck offering. The R1T was the first product Rivian produced for customer delivery,

with the first truck rolling off the factory floor in September 2021. The R1T was also the first EV pickup truck on

the market, and industry experts received it well. MotorTrend, a magazine for car enthusiasts, named the R1T the

"2022 Truck of the Year" and stated that the R1T is "a remarkably original take on the pickup truck [that] redefines

the genre," and it is "the most remarkable pickup truck we've ever driven."5

The estimated range for the high-end model is up to 400 miles on a single charge. It is also the fastest: With the

power of the electric motor equivalent to 835 horsepower, it accelerates from zero to 60 mph in just 3 seconds, faster

than most Porsche and Ferrari sports cars. Built on Rivian's skateboard platform, it can seat five and has best-in-

class outdoor functionality. Through the engines in the skateboard platform, the R1T can safely and effectively

maneuver rough terrain.

The starting price for the R1T is $74,000 (for the base model), but it can go up over $100,000 based on choices

in interior design, wheels, motors, and batteries. Consumers can also add various outdoor-related features ranging

from full kitchens to off-road recovery kits through Rivian's Adventure Gear (separately purchasable outdoor tools,

equipment, and amenities that fit into and work with Rivian vehicles). To streamline production, Rivian prioritizes

the production of the high-end models for both the R1T and R1S while not making the entry model for the time

being.

As of 2022, the average selling price of the R1T is around $80,000. But, with increasing price pressures due to

persistent inflation and supply chain challenges, it is unlikely that either of Rivian's R-line of vehicles will qualify for

the $7,500 tax exemption for purchasing an EV, included in the Inflation Reduction Act, which became law in 2022.

Exhibit 6 shows the main specs for the R1T, R1S, and competitor EV trucks, including the Ford F-150 Lightning and

the Tesla Cybertruck. R1S

The R1S is Rivian's SUV offering, designed to hold seven passengers. The starting price for a basic model is

$78,000. The amount can go up to over $90,000 depending on what features the customer decides to upgrade and

adjust. Like its older sibling, the R1T, the R1S is also built on the same skateboard platform with similar perfor-

mance metrics. The R1S can also be equipped with a wide range of Adventure Gear. The Rivian's SUV, in addition

to having more passenger capacity, also boasts 42 extra feet of cubic storage, making it a better option for larger

groups or families. Due to supply chain constraints, Rivian has moved the customer delivery date of the R1S to 2023.

EDV

The electric delivery van (EDV) is Rivian's commercial van offering. It comes in three sizes based on the cubic

feet of cargo space (the EDV-500, 700, and 900). The company builds the commercial vans on a modified version of

its skateboard platform called the RCV (Rivian Commercial Vehicle), with fewer motors because the delivery van

does not need the same performance and off-road capabilities as Rivian's adventure vehicles. The EDV also pos-

sesses a lower range (200 miles per charge) because it is meant primarily for urban last-mile deliveries. EDVs will

be recharged daily at Amazon's delivery hubs and warehouses.

Amazon ordered 100,000 EDV-700 from Rivian in 2018, to be delivered by 2030.6

Rivian worked closely with

Amazon to customize the EDV for the retailer's last-mile delivery needs. Indeed, the ecommerce giant and Rivian

designed the vehicle together, including co-innovating features to suit Amazon's needs. The van has several delivery-

focused features like 360 degrees surround vision, radar features, ergonomic adjustments, and more.

Although the price point of the Amazon-custom EDV is not public, it is assumed to be considerably less than the

sticker price for the Rivian's adventure vehicles. In addition, the Inflation Reduction Act includes tax exemptions of

up to $40,000 per EV in commercial use, such as the EDV. Amazon started to use the first EDV-700s in the summer

of 2022. During the 2022 holiday season, Amazon used more than 1,000 EDVs across more than 100 U.S. cities.

Rivian's EDVs are integral to Amazon's climate pledge to reach net-zero carbon by 2040.

SKATEBOARD PLATFORM

Rivian's adventure vehicles redefine what utility vehicles could be: Built on the same innovative skateboard plat-

form and equipped with four electric motors, one for each wheel. The skateboard technology is a specific configura-

tion of an automotive chassis with a powertrain and electric motors, among other fundamental components. It is

used as a platform on top of which to build different types of electric vehicles. Much like Lego blocks, various body

sizes and shapes can be mounted on a skateboard platform in a modular fashion. Skateboards can be adjusted in

size, for example, by increasing or reducing the wheelbase.7

For instance, although the R1T and R1S use the same

skateboard chassis, the wheelbase for the pickup truck is larger than that of the SUV.

Rivian's skateboard is equipped with an innovative quad motor design. A motor for each wheel allows for instant

and independent power delivery, providing the vehicles with more precise torque control and traction in any condi-

tion on and off the road. The skateboard houses the battery packs and drivetrain. It can withstand severe conditions,

ranging from thermal extremes to the impact of bumpy offroad driving.

Rivian's four-motor electric powertrains with advanced battery technology are one of the industry's most innova-

tive design breakthroughs because they provide superior driving performance and are relatively simple to manufac-

ture. Using the same skateboard technology for the R1T and R1S reduces development costs and facilitates scaling up production. Rivian's proprietary skateboard platform, available as a dual or quad motor layout, has the potential to be a sig-

nificant business opportunity by offering its innovative technology to other car makers. As such, Rivian can be both

an OEM making EVs for consumers and a supplier for other OEMs with its skateboard technology. Therefore, the

platform has significant potential for collaboration with legacy carmakers, which can quickly and efficiently develop

their own EVs.

FLEET SERVICES

Along with its commercial van offering (EDV), Rivian also offers fleet management software called FleetOS.

This operating system aids commercial customers in centralizing aspects of fleet management ranging from safety,

vehicle health, asset tracking, and more. The FleetOS works with non-Rivian vehicles, allowing customers to con-

solidate their fleet operations in a single service. While this operates on a subscription model and all Amazon EDVs

are included, the subscription price is currently unknown. Rivian also provides fleet charging services, software, and

fleet service and maintenance to their enterprise customers.

CHARGING INFRASTRUCTURE AND PRODUCTS

Although Rivian's high-end vehicles can drive up to 400 miles on one charge, range anxiety remains a concern for

many potential EV customers. Focusing on adventure vehicles that people use to travel to remote destinations such

as national parks, range anxiety might be even more pronounced. Rivian started to build out two charging networks

across the U.S. and Canada, its exclusive Adventure Network (AN) and its publicly accessible Waypoint Network

(WN), to address this customer pain point. Notably, the AN and WN will be 100% powered by renewable energy.

The Adventure Network is a planned network of fast chargers exclusive to Rivian vehicles. The AN chargers add

up to 140 miles of range in 20 minutes to the R1T and R1S. Rivian plans for more than 3,500 chargers at over 600

locations across the United States. The envisioned network of AN chargers will allow Rivian users to plan road trips

or longer journeys.

The Waypoint Network is Rivian's planned network of slower charging infrastructure. WN chargers will only

deliver up to 25 miles of range per hour and will be strategically located near popular destinations like malls and

restaurant-dense areas. Notably, these will be accessible to non-Rivian EVs as well. Rivian plans on more than 10,000

of these across the Northern United States.

Rivian's vehicle travel and route planning features will automatically route owners through charging stops in their

network based on range and reload necessity, allowing for a more convenient travel experience. All Rivian vehicles

can be charged on the public network with regular Level 2 chargers (150 miles of range in 4-8 hours) and fast char-

gers (150 miles in 15-30 minutes). Rivian also sells Wall Chargers for $800, allowing customers to charge their

vehicles at home at a maximum rate of 25 miles per hour. Rivian cars also come with portable chargers for 120 or

240V outlets for 3 or 16 miles per hour.

RIVIAN MEMBERSHIP

The EV startup also launched Rivian Membership, a subscription service for owners. Membership benefits

include complimentary charging on their AN and WN networks, unlimited 4G LTE vehicle connectivity, and extra

assistance and support in off-road locations. Following Rivian's commitment to sustainability, the membership pro-

gram matches every mile driven with renewable energy. Rivian also has plans to expand the service offered over time, adding benefits like extra vehicle capabilities, add-ons, drive modes, and even community events. Initially, all mem-

bership benefits are complimentary, with the understanding that Rivian will charge for certain benefits in the future.

R&D, Manufacturing, and Scaling-Up Production

RESEARCH AND DEVELOPMENT (R&D)

To design and build category-defining adventure vehicles with battery-powered electric motors is a capital-inten-

sive endeavor. Rivian's adventure vehicles must operate at high-performance levels in rugged terrain, inclement

weather, and extreme temperatures. Not only this, but the R1T and R1S must be able to perform several taxing tasks,

such as towing and offroad driving. Rivian's commercial vehicles must be reliable for at least 12 hours a day, 7 days

a week, and 365 days a year.

Consequently, research & development (R&D) has been Rivian's most significant expenditure. Since inception in

2009, Rivian spent some $2 billion or almost 75% of all pre-IPO expenditures on R&D. By 2021, Rivian had outspent

several comparable young EV startups such as Canoo, Nikola, Fisker, Nio, and Lordstown Motors in R&D by a large

margin.8 Exhibit 7 shows Rivian's operating expenses (2019-2021), the majority of which are R&D expenses. While

currently more expensive than ICE cars, EV vehicles are expected to reach price parity with ICE vehicles by end of

the decade as battery costs continue to fall (Exhibit 8).

MANUFACTURING

Rivian's R&D efforts have benefitted from partnerships with other leading companies. In collaboration with

Ford, Rivian learned how to manufacture at large-scale, high-quality, and low-cost vehicles. In 2022, Rivian

announced a deepening of its partnership with Mercedes. The two companies agreed to form a joint venture to build

a European factory to produce commercial vans for both companies. A few months later, Rivian put the joint ven-

ture on hold to conserve cash.

In 2017, Rivian acquired a defunct Mitsubishi plant for $16 million in Normal, Illinois, slated to manufacture

Mitsubishi's electric i-MiEV vehicle. Tesla also started production out of a purchased plant (NUMMI, from Toyota)

and Rivian likewise hoped to benefit from the lower setup and production costs of using a pre-existing factory.

Unlike Tesla's purchase, the factory in Normal was of relatively recent vintage (1989) and built to assemble EVs,

meaning that Rivian had to perform fewer modifications to the factory setup. Rivian commenced manufacturing the

R1T and R1S in the fall of 2021.

SCALING-UP PRODUCTION

Scaling-up production is critical to lower per-unit costs. The Normal, IL, plant has a capacity of 150,000 vehicles

per year. Rivian's first plant is relatively small, however. In comparison, Tesla's first plant (Fremont, California)

produces 650,000 vehicles per year, while Tesla's Giga Shanghai (China) produces more than 750,000 vehicles, with

a yearly max capacity of 1,000,000.

As 2023 dawned, Rivian's production lines were only running at about 25% because of continued supply chain

challenges resulting from the lack of parts. Most prominently, the global semiconductor shortage has been causing

countless stalls and delays in Rivian's production line. Since semiconductor chips are necessary components in

many products, and supply was limited in the wake of the Covid-19 pandemic, Rivian has had difficulty securing

consistent chip supplies. But, it is not only the lack of microchips that stops Rivian's production lines. To build one R1T truck, for instance,

Rivian needs more than 2,000 sub-assemblies (a total of 25,000 components) from 400 first-tier suppliers, which in

turn have suppliers of their own, and so on. Although Rivian makes critical parts such as battery packs and modules

in-house, it does not make microchips, tires, or headlights. The headlight alone has over 100 parts. Any missing

component prevents the completion of the vehicle.

Persistently high inflation resulting in rising costs for materials such as nickel and lithium that are necessary for

batteries contribute to higher production costs, which in turn led Rivian to drop their lower-priced entry models

("Explore") for both the R1T and R1S. Given the production constraints Rivian is facing, it is currently producing

the high-end models ("Adventure") or the R1T and R1S only.

Another challenge contributing to Rivian's slow production ramp is that it produces four vehicle models simulta-

neously, albeit on only two skateboard platform technologies (R1T, R1S, EDV-700, and EDV-900).9

In contrast,

Tesla focused on one vehicle type at a time. It started at the high end with the original Roadster, then moved on to

the Model S, then the Model X, before producing the Model 3. With some delay, Tesla scaled up production for the

Model Y. Similarly to Rivian, the Model S and Model X share the same platform, while the Models 3/Y also share

the same skateboard chassis. To ramp up production to meet its high demand, Tesla opened multiple factories across

the globe while delaying production of the Cybertruck and the Semi Truck.

In 2022, Rivian was able to build and deliver 24,337 vehicles. Rivian has been able to ramp up vehicle production

every quarter (Exhibit 4). From a comparatively small batch of 1,015 adventure vehicles produced in 2021, Rivian

ramped up production to an impressive 10,020 vehicles in Q4 2022, increasing it by almost 10x in just one quarter

compared to the entire 2021 year production. However, to meet its production goal of 50,000 vehicles in 2023, Riv-

ian will need to double the 2022 production rate.

Business Model

As a follower of Tesla in circumventing the traditionally high entry barriers in the automotive industry by leverag-

ing two discontinuities, electrification, and autonomy, Rivian learned from Tesla's playbook. Rivian offers Level 3

autonomous driving with highway assist features including automatic steering, braking and acceleration on highways

that have been previously mapped by the company for safety (Exhibit 9).

As a pure EV play, Rivian uses many elements of Tesla's business model: Direct-to-consumer sales via the com-

pany's website (https://rivian.com), fixed pricing, which manifests itself in a no-haggle policy, low marketing

expenses as the brand is building a loyal cult following, where people promote Rivian products online and by word-

of-mouth, a social network of Rivian members, software platform (Rivian iOS, with over-the-air [OTA] software

updates), and mobile vehicle service.

Rivian conducted a voluntary service recall of 12,000 R1Ts in 2022. Unlike traditional carmakers who do not have a relationship with the end customer because they are contractually obligated to go through established dealer networks, Rivian owns all customer data. Consequently, it could send mobile service teams to its customers and fix the recall issues in a few minutes. And it could complete servicing all 12,000 vehicles in record time. Traditional carmakers take months, if not years to address vehicle recalls. The Industry and Competition

INDUSTRY OVERVIEW

After peaking at 17 million units in 2016, the U.S. market for new automobiles was about 15 million new vehicles

in 2022. EVs are seen as the primary method of offsetting emissions and carbon costs for the transportation and automobile industry, a sector that represents around 16% of global emissions. The share of electric automobiles glob-ally has risen to approximately 10% in 2022, four times as high as in 2019. In the U.S., sales of battery electric vehi-cles stood above 6% of total unit sales in 2022, up from 1.5% in 2020.

Renewed public policy support contributes to a larger share of electric vehicle purchases, with spending on subsi-dies and other incentive programs for EVs doubling as part of the Inflation Reduction Act (IRA), which passed in 2022. But, the federal subsidies included in the IRA come with several strings attached. In particular, a federal tax credit of $7,500 per vehicle ("clean vehicle credit") is available for manufacturers that have not reached the 200,000 vehicle cap. For instance, none of the Tesla vehicles qualify, nor do the GM's Chevy Bolt or GMC Hummer EV since they sold more than 200,000 for the specific vehicle types. To qualify for the clean vehicle credit, EVs must also be assembled in the U.S. The vehicles for private use must cost less than $55,000 for sedans and $80,000 for SUVs, vans, or trucks. In addition, the purchaser's gross income must be less than $150,000 ($300,000 for married couples).

In 2022, California, the most populous state in the U.S., passed legislation banning the sale of new ICE vehicles starting in 2035. California has been a regional leader in climate policy. Following the Golden State's lead, 17 other states have enacted laws that require them to follow California's emission policies. At this point, Washington, New York, and Massachusetts have also implemented ICE bans, but this is likely to change with climate change becoming an ever more pressing concern.

The growth of the EV industry in 2022 was helped by significant increases in the price of gasoline and traditional fuels used in ICE vehicles. The more expensive gasoline makes EVs comparatively more attractive, as electricity prices have risen much less. Although retail gasoline prices have increased by nearly 50% since 2020, electricity prices have remained much steadier, going up by only about 17% during this same time.

Electric-Vehicle Pure Plays

TESLA

With a 68% market share, Tesla is the clear leader in the EV segment. Tesla has been growing its production vol-ume by 50% year-over-year. In 2021, Tesla sold 930,000 vehicles, which grew to approximately 1.5 million in 2022.

Demand for Tesla vehicles outstrips supply, with 95% of all cars being Models 3/Y and the remainder the more expensive luxury sedan (Model S) and SUV (Model X). In 2019, Tesla revealed its futuristic Cybertruck, a direct competitor to Rivian's R1T. Because of continued production challenges, Tesla pushed back the production of the Cybertruck to 2023.

Tesla is the only foreign EV maker with a strong foothold in China, the world's largest EV market. Giga Shanghai,

Tesla's factory in China, produced about one million Models 3/Y in 2022. Another advantage Tesla carries is its sig-nificant infrastructure and manufacturing capabilities. Due to its gigafactories across several continents (U.S., Ger-many, and China), Tesla can manufacture at scale effectively. Tesla has significant supplier advantages since it formed a joint venture with Panasonic, the world's leading battery supplier. Moreover, Tesla is vertically integrated, with some 85% of the value creation in-house, allowing for higher quality, lower costs, and a better driver experience. Yet, Tesla faces some challenges. Since demand for Tesla vehicles outstrips supply, it leaves opportunities for oth-ers. Second, Tesla is late to the EV truck market, with Rivian taking the lead, followed closely by Ford with the F-150

Lighting truck. Yet, the pie of the EV market is growing. Thus, industry experts do not expect zero-sum competition.

Instead, there is room to thrive for multiple EV makers, but speed to market and production volumes at high quality and low cost are critical.

LUCID MOTORS

Lucid Motors is another U.S. pure-play EV competitor focusing on high-performance luxury EVs. It began pro-duction at around the same time as Rivian. Lucid positioned its first vehicle, the Lucid Air, upmarket from Tesla's Model S. The price for the Lucid Air ranges from a base of about $80,000 to $180,000, depending on options and trim package.

Lucid Motors is also attempting to introduce an SUV model by 2023. Like Rivian, Lucid has had difficulties scal- ing up production, slashing its 2022 production outlook from 20,000 vehicles to around 6,000 and producing far fewer vehicles than Rivian.

BYD

BYD, or Build Your Dream, is China's leading EV firm, with around 730,000 in vehicle sales in 2022. BYD focuses on mass-market vehicles and commercial offerings, such as buses for public transportation. BYD is also the third largest producer of EV batteries and has in-house chip production capabilities, giving them significant resil-ience in supply chain issues. BYD has also developed the Blade Battery, a cheap and long-lasting EV battery pack that it hopes to leverage and sell to the rest of the industry. Currently, BYD has only expanded its bus offerings to the U.S. but is planning on eventually bringing its consumer EVs there. In 2022, BYD began offering EV sedans in Europe. The BYD midsize sedan (Han) and SUV (Tang) each cost about $75,000.

Legacy Carmakers

GENERAL MOTORS

General Motors (GM) is a potential competitive threat to Rivian. GM sold over 500,000 EVs in 2021, including the GMC Hummer EV ($110,000), a direct Rivian competitor. Like Rivian, GM developed its skateboard platform (Ultium) and invested in modular batteries and battery manufacturing infrastructure. GM is releasing a plethora of electric vehicles in the near future. The most direct threats to Rivian are the all-electric Silverado as well as the Hum-mer EV (price range $50,000-$110,000, depending on options). GM is also positioned to compete with Rivian on another front: commercial EV vans. It already supplies FedEx with its BrightDrop electric vehicle and ecosystem products FedEx.

FORD

Ford is planning on investing $22 billion in electrification through 2025. It recently released (among other EVs) an electric version of America's best-selling vehicle, the F-150 Lightning. The F-150 Lighting appears to be the clos-est product to Rivian's R1T. Ford received over 200,000 reservations for the F-150 Lightning and then ceased taking them. Ford started delivering the F-150 Lighting to customers in 2022 and produced 20,000 EVs that year. Ford's new EV truck range is about 240 miles per charge. The prices range from $56,000 for the base model to $100,000 for the Platinum Extended Range model. For 2023, Ford plans a production run of 150,000 F-150 Lighting EV trucks. Ford benefits from spillovers with its ICE F-150 truck. Both F-150 factories are collocated to share resources such as the aluminum body for the truck.

Ford also set up the Blueoval charging network, with over 75,000 charges throughout the U.S.

STELLANTIS (CHRYSLER)

Chrysler, the iconic American carmaker, is, since 2021, part of Stellantis, which was formed through the merger of the Italian-American conglomerate Fiat Chrysler Automobiles (FCA) and the French PSA Group. Chrysler's

Jeep brand is most likely threatened by Rivian's R1S and R1T offerings. The Jeep brand appeals to a similar demo-graphic of outdoor adventurers, but Chrysler does not plan to release EVs until 2025. While Rivian's R1 offerings are more luxurious and expensive than most Jeep vehicles, its more affordable R2 offering, to be released in 2026, may take a large chunk out of Jeep's market, selling around 800,000 cars annually.

Challenges

Although RJ Scaringe was trying to enjoy the stunning beauty of the Teton mountains, his thoughts kept drifting back to the problems at Rivian. The pressure to ramp up production left its mark on RJ Scaringe and Rivian employ-ees. A few days before the company's IPO, a former sales and marketing executive sued the electric-vehicle maker alleging she had been fired after complaining to human resources that she had experienced gender discrimination.

In 2022, several high-profile executives left the company because of disagreements in vehicle pricing and how to solve the production challenges. Moreover, to conserve cash, CEO Scaringe laid off some 14,000 people, or 6% of its workforce, primarily white-collar workers. For 2023, RJ Scaringe has announced another round of job cuts.

All the talk about Rivian being overhyped while under-delivering was starting to grate on RJ Scaringe. Elon Musk's words about being in production hell when attempting to scale up the manufacturing volume at Tesla are ringing in his ear. And he couldn't agree more. Manufacturing cars at a large scale is challenging but critical to driv-ing down per-unit cost.

What concerns many is that Rivian was attempting to ramp up production of four different vehicles at once: R1T, R1S, and two different sizes of the electric delivery van. Reaching a large enough volume to achieve cashflow-positive production consumes billions of dollars and takes several years. While Rivian has $13 billion of cash on hand (Q3 2022), it is still one of the most significant challenges RJ Scaringe has ever faced. During the first nine months of 2022, Rivian lost $5 billion, in addition to the $4.7 billion lost in 2021 (Exhibit 2).

At the same time, RJ Scaringe confirmed Rivian's $5 billion commitment to a new factory in Georgia to build lower-cost vehicles on the smaller R2 platform. He anticipates that the first R2 trucks and SUVs will roll off the assembly plant in 2026. The anticipated production volume of the new factory is 400,000 vehicles per year.

Meanwhile, in 2023, Rivian is planning to produce 50,000 vehicles. Doubling production in twelve months is a stretch goal, given continued supply chain challenges and a worsening macroeconomic environment of high infla-tion and rising interest rates. When shifting production from the original Roadster (2,600 units) to models S and X for a broader market appeal in 2013, Tesla produced only 22,400 vehicles in the first year and 32,000 in the second year of production (2014). Tesla could only grow output by 50% despite a much more favorable macro environment of low inflation, zero interest rates, no supply chain disruptions, and no competition in the EV segment.

RJ Scaringe hates to disappoint his customers with whom he feels an emotional bond, given that they share his vision for carbon-free adventure vehicles. He had promised 50,000 cars in 2022 before he needed to backtrack. He wonders how patient customers will be and how much he needs to raise prices to break even on the cars, given the higher input costs for materials, energy, and labor. To cope with rising input costs, Rivian increased prices retroac-tively by around 20% on all vehicles in spring 2022, including for customers who already had put a deposit down for a reservation. After a customer outcry, amplified via social and traditional media, RJ Scaringe issued a public apol-ogy and guaranteed the original price for pre-existing reservations.

In the wake of the "pricing scandal," Rivian changed its reservation policy. While customers can continue to put down a $1,000 refundable deposit, they cannot lock in configurations and prices. Given the uncertain macro envi-ronment, Rivian does not have sufficient planning certainty. As such, while Rivian has 114,000 reservations for the R1-line vehicles in addition to the 100,000 EV vans for Amazon, many customers for Rivian's trucks and SUVs have put down multiple deposits at Rivian, Tesla, Ford, and GM to buy the first EV truck they can get.

RJ Scaringe is concerned about missing Rivian's window of opportunity as a first mover in the EV truck space.

What worries him even more, is that he does not want to disappoint his customers again, who were starting to build a cult-like following around Rivian's vision. To keep marketing expenses to a minimum, Rivian needs a loyal follow-ing of enthusiasts as volunteer brand ambassadors.

While RJ Scaringe started preparing breakfast for the family on the R1T's pull-out camp kitchen, his thoughts remain on how best to address the formidable challenges at Rivian ...

Here are the guidelines:

The purpose of this assignment is:

- To put yourself into the shoes of the decision-maker in the case and provide actionable recommendations that are backed up by fact-based analysis

- To apply concepts, tools, and theories covered in classes to this real-life business case

Main issue identification: Clearly define a main issue to solve & explain why that issue is important

o No more than one paragraph; get to the point quickly

o Must be central issues, not peripheral ones

o Must be strategic issues, not functional/operational ones

This is not a summary of the case, but a diagnosis of the main problem/issue in the case.

o Assume that the instructor already read the case

o Don't be too descriptive; provide your own insights or interpretations of the situation.

Remember that the problem identified in this stage directs the rest of your work.

Analysis: Analyze BOTH external AND internal environments of a firm.

Conduct in-depth analysis of the situation; Analysis is not summarizing what is written in the case. It is the process of tracing (root) causes and finding areas to improve.

Try to apply concepts, tools, models that we learn as thoroughly as and as specifically as possible.

Remember, however, that these are analytical tools, which help in forming judgments concerning central problems and associated recommendations: these tools are not ends in themselves.

Do not mix your analysis and solutions together. In the analysis phase, stay focused on "As-Is" condition and avoid making hypothetical situations.

After analyzing each of the environments, synthesize your findings and draw strategic implications

Go deeper than a general textbook statement; Keep asking to yourself, "SO WHAT?"

Your analysis remains focused on addressing your issue

- the external analysis first, and then internal analysis

Alternatives: Derive TWO alternatives based on your analyses and answer why these particular alternatives are worthwhile to consider

Provide a title of each alternative and explain what it is

o "Vertical forward integration through the acquisition of Company XXX"

o "Stop producing for tier 2 market and shift to the tier 1 market"

o "Market-related diversification into the product XXX"

o "international expansion into the country XXX"

o "Joint venture with Company XXX"

o .... Ask, "is this solution realistic?" Discuss what the pros and cons of each alternative are, reflecting on the analysis results. Provide your own reasoning process.

NO strategy is risk-free or problem-free. Every strategy has its advantages and disadvantages.

This stage is a logical bridge between your analyses and final recommendations. Do not jump into the recommendation, but compare and contrast your two best alternatives.

Recommendation: Propose your final recommendation between the two alternatives and develop your own arguments of why the one you choose is better than the other

Your recommendation should follow logically from analysis of the two alternatives o Provide strong supporting evidence Make sure if your recommendation solves the issue you identified

A common mistake is "NO recommendation" or "Do both at the same time."