Rivian. Will their electric cars end Detroits dominance of the American auto industry? Investors are coveting the Illinois automaker—but giants such as Ford and General Motors still have many advantages. Subscribe to Electric Vehicle News Bitesize Podcast for FREE!
At least according to Wall Street traders, Normal, Illinois has only 55,000 people, and it may be the future of automobile manufacturing. It is a 6-hour drive from Detroit. Detroit is the birthplace of the American automobile industry for more than 100 years, but they are not sure.
Earlier this month, the town gained international attention following the listing of Amazon-backed electric car startup Rivian, which is one of the largest stock markets since Facebook. Although the company only delivered about 150 trucks, Rivian is now worth about $100 billion, higher than Ford or General Motors, which produced about 10 million cars in 2020.
Investors’ enthusiasm for Rivian—especially after its electric car rival Tesla’s valuation reached $1 trillion—has once again raised questions about whether Detroit’s century-long auto industry rule is threatened. But not everyone believes it.
The momentum of upstarts should not be ignored. The company’s clear vision, fanatical “cool factors” and potential are the legitimate forces that drive the rise of stocks. Rivian’s stylish R1T electric truck has received rave reviews, and there are still 55,000 orders. The company announced plans for a second plant within a few days of its initial public offering (IPO). It will launch an electric SUV next month and has ambitious plans to increase annual car production to 1 million vehicles within ten years.
The company has strong support. Amazon, Rivian’s biggest backer, owns 20% of the company and has ordered 100,000 electric trucks to deliver packages to e-commerce customers, while Ford’s 12% share provides more legitimacy, even though the two have stopped their plan to develop cars together.
But skeptics say that the mathematics arouses suspicion. Rivian has attracted some of the industry’s top manufacturing and logistics talents to guide its growth, but it is very difficult to scale. The company is planning to develop at an unprecedented speed and will outperform Tesla in the early stages.
A price of $70,000 per truck, the company’s highest valuation means that it will sell about 3 million cars in 10 years, accounting for about car 12% of the market. This is more than BMW’s sales last year.
It took Tesla about 5 years to start production on the second production line, and less than 1 million cars were produced 12 years after the IPO. Tesla also has market share, and it is the only real player in electric vehicles (EV). One week after Rivian’s IPO, General Motors launched the electric Hummer, and Ford’s F-150 Lightning was the first electric version of the best-selling truck launched earlier this year. There are already 150,000 pre-orders. Tesla customers accounted for 11% of these sales.
The electric vehicle market is expected to take off in the next few years. General Motors and Ford’s goal is to sell 1 million electric vehicles per year by 2025, and may achieve this goal at a lower price, which is more than the “early adopters” and luxury buyers that make up most of Rivian’s customers.
Traditional automakers also have the infrastructure to increase production faster than Rivian. Ford announced the Lightning at the end of 2020 and will deliver the first batch in early 2022. This process took Rivian about six years. Coupled with Ford’s inherent brand loyalty and mature marketing business selling household-name products.
Traditional automakers have also established a dealer network to provide services for new products in the event of inevitable failures. This can cause frustration for Rivian and costly logistical challenges when the car breaks down.
Although Rivian’s IPO injected an impressive amount of more than $11 billion in cash, the coffers of Ford and General Motors denied this advantage to some extent.
Traditional companies must figure out how to effectively reduce combustion production while expanding production of electric vehicles. This is a challenge that Rivian does not have to face.
Although Ford seemed a little caught off guard against the transformation of electric vehicles a few years ago, analysts said that the rapid mobilization of the F-150 dispelled any suspicion and that the company “can pay close attention to the competition” shows that it is ready. By the end of the week, Rivian’s stock price fell because investors took profits and the number of outstanding issues put pressure on its future.
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