RJ Scaringe on Rivian's Biggest Test: R2, Supply Chains & China

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1:08Hello and welcome to another episode of the Everything Electric podcast. And if you are watching this rather than listening to it, you may notice that today is a different day from the interview with our guest. And that is because I spoke to our guest quite late at night and got so excited, I totally forgot about the intro and outro. But our guest today is, of course, RJ Skarind, who is the founder and CEO of Rivian. And in this conversation, he shared details of how the Rivian came to be, the founding story, the supply chain risks that they're currently facing, what's happening in China and what to expect next from the Rivian lineup.

1:41It is such a wonderful conversation and I cannot wait to share it with you. But first, a very quick advert break. Our three free YouTube channels on EVs and cleantech are funded by our fun-packed, test-drivetastic events in Farnborough, London, the South West, the North, Melbourne and Sydney and next up, Everything Electric Farnborough. And new for UK viewers, you can now buy a battery EV and much more at everythingelectric.store. Now, back to the episode. RJ, thank you so much for giving up an hour of your morning. There are so many people who are going to be listening to this podcast who know precisely who you are and what you do.

2:19But for those who might have been living under a rock, what is your dinner party response from people say, oh, hello, who are you and what do you do? Well, it's been for a while now. I would respond by saying I started Rivian and up until a few years ago, then it would follow with what is Rivian? And I'd have to describe what Rivian is and what it takes to start a car company. But I would, you know, I started Rivian in 2009. And it's been quite the journey, you know, starting a car company from scratch, you know, has a whole host of challenges, not the least of which is you need a lot of capital, you need a very large team, you need, you know, large manufacturing footprint, hundreds of supplier partners, proven technology, a brand people care about.

3:06And so you have all these really hard to build things, and you need them all at the same time. In the beginning, you have none of them. And so it's been quite the journey for me. We're now getting ready to launch our next generation of product, which we call R2. And it's a smaller form factor, much lower price vehicle than our flagship product, R1. And I couldn't be more excited about it. It takes all the learnings of what we've done to date and puts it into a package where the price points meaningfully lower, the cost is less than half of what it takes us to build an R1. And, you know, I've been driving.

3:41I did school drop off the other day with an R2 and it was like heaven. The kids were so excited. So, you know, I think anyone inside the business that's working on R2 or exposed to it just can't wait for people to experience it. And I think I'm right in saying we should be expecting that early-ish next year. Yeah, early-ish, as early as possible next year. And just also to bring everyone up to speed, the current products that you have on the road are the r1t and the r1s yep and the r2 that is coming is as you say it's around 30 000 less expensive than the r1t and r1s yeah so the so we have a r1t r1s think of those as our flagship products so they're very high performance they're uh premium products you know very very aspirational products but the average selling price of those is around 90 000 90 000 us dollars r2 starts at 45 000 and um you know and it it very much is a rivian meaning the way we've done product features and the attributes and all the trade-offs across performance versus uh let's say efficiency and content it's it feels very rivian like but it's a smaller package and um you know offers still very very very strong performance we were super lucky to have an r1t during some filming in Canada about a year ago.

5:08And we drove from Vancouver all the way up to Hope. And Hope is a bizarre place because it's also where quite a lot of filming has – what am I trying to say? Rambo. Some of the Rambo films were filmed in Hope. Oh, really? Yeah. And you go to this sensational landscape to get there, and then you end up in the middle of nowhere. And just having that R1T, it was extraordinary. It was really, really extraordinary. Yeah, I think especially when you explore the outdoors, you know traditionally you know exploring the outdoors in a vehicle is done in things that are loud and noisy and not particularly efficient and so being able to do it in you know the with the serenity of being in a vehicle that's completely silent is is really special and especially one that I think sort of embodies a version of the future but if that version of the future was imagined by a Pixar character without being babyish uh I know that's probably slightly a fluffy way of describing it, but you feel futuristic, cool, but friendly.

6:10Friendly. Yeah. We, we, it's funny you say that we, you know, in designing the vehicles, we wanted them to feel both desirable, but still very friendly, you know, and a lot of automotive design, we've seen things look quite upset or angry, especially as you look at higher performance vehicles, you know, and you take our R1T with our quad motor, it's, it's faster accelerating to 60 miles per hour and then to 100 miles per hour than almost any hypercar. And of course, it's a pickup truck or an SUV in the case of the R1S. And so there's a friendliness to the fact that it's such extraordinary performance on road.

6:45Of course, off road, it's, you know, hypercars don't go off road, but it's also extraordinary performance off road. So it's just a very unique combination of capabilities wrapped in a skin that feels very approachable, very lovable. Now, one of the things I want to ask you is that you began Rivian in, I think, 2009, which is interesting for a number of reasons. Firstly, that was quite a different time. We were sort of pre-BW, Dieselgate scandal. EVs were still very niche. Elon Musk was still perhaps not divisive at that particular point in time. and also you hadn't worked in an OEM before you had a lot of experience with cars from everything that I've listened to and read but hadn't worked in an OEM so I wonder at what point did it dawn on you the scale of the challenge yeah I mean I as you said I started the company I was right out of grad school and I'd known I wanted to start Rivian or what would eventually become Rivian since I was a kid.

7:52So since I was, I don't know, maybe 10 years old, I knew I wanted to start a car company. And when you're a kid, you don't really think about all the mechanics of what that entails and the scale of it. But I ended up going to school for automotive. I did my PhD work was working with a collection of different large scale manufacturers, which gave me some exposure. But as you rightly said, I made the decision to not go work at a car company, but rather start the business right away. And I actually thought like when I, earlier on, well, before I started the company, I actually thought I'd go work somewhere first.

8:28And as I was doing my, my graduate work, I realized I didn't want to wait. Yeah. I didn't want to like lose five years or 10 years working somewhere. I wanted to just start right away. And so, yeah, I started the company. And for me, like building a business, there was a lot of learnings that had to happen. There was, of course, as you said, just the scale of something like this and needing to be in some ways intellectually honest with yourself that if you really want to start a car company, and in particular, if you want to start one and develop technology, meaning not rely on suppliers or third parties, but actually build innovative technology yourself, you need to spend, you need to be positioned to be able to spend many billions of dollars.

9:08And you have to spend billions of dollars before you generate your first dollar of revenue. And even if you had billions of dollars at the very start, it would still take you several years to get to the first product. So it's just a very unique type of business where most like the venture capital community and the startup community has really been built around this idea of you build a very hacked version of your product. You know, a minimum viable product, as it's often called. Demonstrate there's market interest. Make it better. Improve it. and you raise, let's say, go from a Series A financing to a Series B, Series C, and you sort of grow your financing pool and then improve the product.

9:48Whereas with the vehicle, you've no chance to do like a minimum viable product to say like, I'm going to ship you like the 50 % solution and tell me what you think and then I'm going to improve it. You have to go all the way. And it means building a plant, building out a very complex supply chain, building a team that has thousands of engineers in it. And so it was, I think I did realize how hard that would, I realized the scale of that. I didn't realize how hard that would be in particular, like pulling together investment and resources. And I look back down with a smile, but imagine like the early investor meetings, I would show up in a room, I'd be describing the business and I'd say, I'm starting a car company.

10:30And immediately there's like, really? And then it's like, all right, well, tell us about your technology. And we're like, well, I don't have any yet. that's why I'm here to try to get some money so I can develop technology all right well tell us about the team well so far it's me all right well show us what it looks like well I don't know about that yet either because we haven't figured that out so you quickly in these investor meetings you almost talk yourself out you're like wow boy there's a lot to do we have none of the money none of the team none of the tech none of the suppliers none of the manufacturing footprint so it's um you know in the beginning it's a really hard business to start since 2009 when you first founded the business we've actually seen a number of EV startups to various different degrees of success some are still here obviously the likes of yourselves lucid tesla etc and some have maybe not been so successful the likes of fisker canoe arrival for which i am an alumni what do you think it is about rivian that has made it uniquely successful and has continued to grow despite all of the headwinds that have obviously emerged between 2009 and now

11:34Well, in starting a business like this, there's a few things I think are really important that perhaps the most important is what you intend to build or what you're ultimately going to build needs to have really strong product market fit. And if I look back when I started the company in 2009, what we thought the product was going to be, what I thought the brand positioning might be, had like by almost by necessity had to evolve quite a bit. And I think this is one of the great strengths of, of entrepreneurs and new businesses is the ability to iterate through lots of concepts until you really feel confident in what the ultimate strategy and product plan is.

12:17And so we went through a number of iterations, some very big, where we had like large, you know, pivots or shifts in what we were thinking we were going to do to arrive on a hypothesis essentially of what we thought would be a great brand opportunity and product opportunity, which now subsequently have become what we know as Rivian. But one of the big things we were focused on was making sure what we were building would occupy an entirely new space, would illuminate a new perspective on electric vehicles, and would create interest in ways that others hadn't. Meaning, I think often in starting a business, if you look for who's been successful elsewhere and you try to replicate that, you end up building something that looks like somebody else's business.

13:06And so we were very cognizant of that. And one of the things that's helped Rivian a lot, I believe, is we were so clear on the brand we were trying to create and so clear on the mission of that brand that it helped inform lots of product decisions and it helped inform how we went about building our technology roadmap and our overall technology platforms. And really it came down to this idea, and it's funny I say it today, but it was like 10 years ago, it was on a chart or like dreaming about it. And we wanted to build a brand that both inspired, but importantly also enabled people to go do the kinds of things you want to take photographs of, which is sort of a fancy way of saying we wanted to enable people to have active adventurous lives.

13:55And when we say active adventurous lives, that could be many things. That could be taking your kids to the beach. It could be going hiking with friends. It could be mountain biking. It could be skiing. But effectively, products that invited your gear, your pets, your kids, your friends, your family members into them and then out into the wild. and the wild is, you know, when I say the wild, I mean, you know, the world into the urban wild, the non-urban wild, like just out there. And so we made a whole host of decisions around what those products wanted to be. And not, you know, now it's very clear, but at the time it was maybe not as obvious.

14:32We said, well, to do that, we want to build a product that underpins a flagship SUV and a flagship truck, which are the two vehicle archetypes, if you will, that most embody this, that type of active lifestyle and use that as the handshake with the world to then build a whole host of lower price products, which we're about to launch the first of with R2 here shortly. So I think that was one big element is we were really clear on what we were doing and wanted to make sure we were building something that didn't yet exist in the world. And sitting here today, it seems more, it's easy to forget, but in like 2000, early 2010s, like call it 2011, 2012, when When I said the idea of electric and off-road, people would say, like, that just can't happen.

15:16What if it hits a big bump? Or what if the vehicle goes through water? Like, there are lots of incorrect assumptions around limitations on an electric vehicle to operate in harsh environments or environments that had any degree of difficulty in terms of terrain. You know, as I said, water. So, like, just, like, big misconceptions we had to work past. That was one. The other thing that I do think is really important is to start a car company, you have to, I think the people that start car companies have some degree of hyper optimism. Because the likelihood of success, especially if you start without money, without a team, without tech, without manufacturing, without suppliers, is just like so low.

16:05So you need to be very, very optimistic, but you also have to simultaneously be very realistic. And those are two things that don't often go together. And so I think we have a very high degree of optimism, but we're still very realistic, meaning we weren't kidding ourselves by saying, oh, you can do this for$500 million. You need to raise a lot more money than that. We weren't kidding ourselves and saying we could develop and launch a whole new product in a year. We knew the product development cycles and test cycles, especially starting from scratch with a team of one myself, would take time.

16:40So there's a degree of realism that was married with this really high degree of optimism that I think helped avoid a lot of the mistakes we've seen others make where they wildly underestimate the task. I now meet with people and they'll say, hey, I'm starting a car company. I say, well, what's your plan? They say, what was my plan? I think I can do it for about$10 million. And I think, well, sure, good luck. But you clearly don't understand the scale of the problem or scale of the task. You know, that's about half the tooling cost on a front fascia. So you can have a half of a fascia, but you won't have the rest of the car.

17:16And so I think that realism that we had was really helpful. It's so interesting because I think the automotive industry, and one of the reasons that I love it so much personally is that you have these creations that are technically extremely impressive you have these incredibly complex supply chains a huge amount of people that need to be involved in creating these things but also for the end consumer their emotional purchases so you're blurring these these this technical world and this sort of brand value world and also something that needs to be incredibly safe as well and as such it just i think working in the automotive industry and especially starting an automotive business requires a huge amount of humility and without it it's going to cost you either in time or poorly managed expectations yeah yeah humility is important yeah it's hard it's very very hard yeah yeah i often say like when you see a vehicle So like you get into a car, you sit in it and you're sitting in, it may not feel like it.

18:21And that's maybe sometimes the intent, but you're actually sitting in many tens of millions of decisions. It's like everywhere you look, there's decisions. And behind those decisions, there's more decisions. So you look at the cross car beam that sits under the IP. There's hundreds of decisions that went into every structural element of that. the radii of the structure the thickness the material selection the manufacturing process supplier selection i mean there's just so many decisions and there's um and and because of the scale of content and the scale of decisions it's not possible for it to be done by one person meaning a lot of products you can design with a very small team like five people can do the whole thing you know or if you're you know some products one person can do the whole thing but in a car unless you're willing for the development process to take you know 20 or 30 ,000 years like you have to put thousands of people in parallel working towards one goal yeah and the best products are the one where it looks like one brain did it despite the fact that you maybe had three or four thousand brains working in parallel and um you know that's just uh it's like it's a big exercise in like coordination of decisioning so I want to fast forward to today because it's a very different world compared to 2009 um rivian and like any company and especially any automotive company has faced sort of unprecedented challenges in recent years not least the covid pandemic and the impact of supply chains and how people could operate during that time there's been probably a more mainstream wake-up call to the extent of the climate crisis followed by a swift politicization of addressing that climate crisis as well and all of that is culminating perhaps in a very difficult trade environment, perhaps spearheaded by a certain Donald Trump.

20:15And as much as it would be brilliant if the automotive industry didn't need to be politicized and EVs in particular didn't need to be politicized, for whatever reason, they are. And I've heard you mention on previous podcasts that your role as CEO is to do the most important job at the time and that the time demands. right now it feels like perhaps that job is is being a master in trade policies and supply chains and politics and i wonder if that's what it feels like i mean it's certainly a big part of the uh the job we you know we um i think in trade uh well let's talk supply chain first so So the supply chain for something like a vehicle is orders of magnitude more complex than almost anything else in the world.

21:07And, you know, so take, for example, our R1. We have several hundred suppliers directly to us. But each of those suppliers has, you know, depending on the system, let's take, I think, a good one to visualize as a headlight. We have one supplier that provides us a headlight. The headlight's built in the United States. that supplier in turn has about 10 suppliers. We call those the tier twos. Those tier twos in turn each have about 10 suppliers. And so you just look at this ballooning of the number of companies that are involved in making our headlight is well in excess of 50 suppliers, 50 different companies.

21:45And a number of those operate in the United States, but of course, a number of those also operate outside the United States. And we don't even have full visibility into all of them. Like the suppliers to our tier twos, you know, we wouldn't under normal circumstances even meet them or know who they are. You know, that may be a coating supplier. It may be a raw material supplier. Could be a tooling supplier for making the parts in the headlight. And so that's a just, we're in a different world now where we have to be very cognizant of what are our tier ones, twos, threes, sometimes four fives look like, where are they located and what are the implications of trade?

22:22um we're fortunate as a company particularly that we operate in the united states that we have a very vertically integrated supply chain for a lot of our content so we make a lot of our own our own things where we act as the tier one or even the tier one or the tier two and we're very us us centric but that doesn't mean we don't have components that are coming from outside the united states a component source systems or raw materials so yeah so we've certainly spent a lot of time now navigating just an evolving trade environment. What I'd say is clearly the administration, I think this is actually something where you see alignment on both the left and the right, is there's a push for more domestic manufacturing in the United States.

23:04I think this is a phenomenon we're seeing in many countries across the world where they're, especially large countries or large economies, where they're pushing to protect or bolster local production or local industry. And so we understand that sentiment and we're designing our future supply chains, recognizing some of those new dynamics that are different than what we saw for the past 30, 40 years, where we started to see supply chains concentrate into areas where you either had advantaged labor costs or advantaged material costs. A lot of that global trade shift that we saw, you know, from let's say the 1960s through very recently, is flipping back to what it was a very long time ago.

23:53But it also seems that, you know, from your perspective, you have a manufacturing operation in normal Illinois, I believe you're also building one in Georgia for the R2. So you are manufacturing in the US. And of course, we can agree that it'd be great to onshore some of those activities to bolster that domestic supply chain but right now due to the nature of the automotive supply chain that's not completely possible and perhaps automotive companies oems in particular are being punished for something that's kind of not really their fault so i wonder you know if you could whisper in uh the administration's ear say that come on help us out here these are the things that would really just make our life a little bit easier what would you say um i mean given the complexity of supply chain i think there's two categories of of supplier decisions so there's i'd say there's three there's there's components and systems that are built in the united states for which that's easy in our case so there's you know that sort of already solved and so that tends to be the things that are physically larger which have you know high logistics costs to move them large distances then you have a category of items that are relatively easy to ship and have high labor costs associated with them.

25:08Where in the case of the United States, we've seen over the last several decades, a lot of that content move to markets where there was the availability of labor and I should say the willingness of a workforce, but also at much lower labor rates. And so Mexico has become a huge part of the US auto industry. And we've had a North American free trade agreement in place for a long time that's help build this very large supply chain. And in Mexico, where the more labor intensive portions of building content that goes into vehicles, things like wiring harnesses have been, it's really transitioned to a Mexican supply chain.

25:49So that's one, but it's that one, those are the types of things that, you know, we could make the decision to move some of that back to the United States. There's capital investment requirements to do that, but there's not structural limitations to it.

26:06It's just a capital allocation decision. Do we want to produce it in the US with a higher labor cost and make that capital investment to do so? The third category, which is actually quite a bit different and in some ways far more complex, are where you have materials that simply are not available in the United States. And so I'll take just a couple of examples. nickel nickel goes into the batteries uh in our vehicles 90 of the world's nickel supply actually about 92 percent comes out of indonesia and so even if we really wanted to there's not an ability for us to like press a button and have a nickel supply chain you know nickel mines pop up uh in the united states putting aside the fact that there'll be very very few communities in the united States that want to have a nickel mine in their backyard and, or they're people that want to necessarily work in that line of business.

27:06And so we have like those types of limitations. And then there's even more extreme examples where I use nickel as a 92 % is coming out of Indonesia. Take heavier earth metals. This is perhaps the most complex. Essentially, all of the world's heavier earth metals are processed today in China. So something like, you know, it's all those things that when you learn the periodic table, it's a lot of those heavy metals that you don't think of often, but something like dysprosium, it is impossible today to source it from anywhere other than China. And can we change that in the fullness of time? Yes, but that will take many years.

27:50This is like, this isn't a 12-month thing. This is a multi-year transition. And so I think we have the big question, not just us, but many businesses that require some of these more difficult to source things like heavy earth metals or areas where you just because of the unique geology of the crust of the earth, where you have more concentrated forms of things like nickel in certain countries, where trade becomes really important. So, you know, if you look at like historically, the United States actually has strong reserves of petroleum. We have strong reserves of coal. So we are fortunate in the fossil fuel era of having a lot of those reserves.

28:32But as you think about future technologies, we actually don't have the same geological advantages that we had in the fossil fuel era. So it by necessity requires trade and trade often with countries that we haven't historically traded as much with. And so saying all that, I think the administration really does understand that they're working. We're spending a lot of time on these types of topics, you know, looking at where the most concentrated reserves of, you know, let's say metals, heavier earth metals for processing, what that looks like, where the countries we need to do business with. and thinking out four, five, six years and contemplating what that future state supply chain is going to look like.

29:19But maybe a funny way to answer the question is, when you start a car company, you don't think to yourself, I'm going to become an expert in mining or understanding the geology of the earth's crust. But suddenly because of the nature of our business, like we have a whole team that really understands the mining industry, really understands the material processing industry. It's a team I spend a lot of time with. And suddenly it puts you right in smack in the middle of a lot of geopolitical big questions. And those big geopolitical big questions are not unique just to Rivian. Every OEM in the US and indeed across the world is experiencing the same sorts of challenges.

29:57So do you have a WhatsApp group or a group chat with various other automotive OEM CEOs where you can just sort of rant about some of this stuff that's making life a little bit tricky? Yeah. This is a fun question because the traditional tech, so when you think of tech as we might look at it through the lens of software businesses, you often have one or two very large dominant players in a segment or in a space within a market. And as a result, you don't have communities of leaders around a segment in the same way that you do in automotive, where by definition, the automotive industry is so large and the preferences of consumers are diverse such that to support, let's say, 90 to 100 million vehicles being produced and sold globally, you actually need multiple brands, multiple perspectives.

30:56Not everyone wants to drive exactly the same thing in exactly the same color from exactly the same company. And so you end up with a large spectrum of brands and companies that peacefully coexist, meaning that, of course, they're competing and everyone's looking at how they're growing relative to others. But I don't think anyone is of the view that everyone has to lose for someone to win. In fact, many companies can win. And so you end up with, in my case, I end up with lots of very strong, very positive relationships with the leaders of other companies where you can certainly contemplate how to look at trade or how we think about some of the geopolitical challenges that are happening across the planet and sort of root for each other, recognizing that a rising tide helps all ships.