The Supply Chain Matters blog highlights Rivian Automotive’s reported operational performance in the latest quarter, but at the same time continued challenges in the months to come.
Improved Operational Performance
Earlier this month, EV automotive and parcel van start-up producer Rivian Automotive announced that in the latest quarter, the EV maker produced 13,992 vehicles at its manufacturing facility in Normal, Illinois and delivered 12,640 vehicles during the same period. Part of Q2’s deliveries involved its contract with online retail platform provider Amazon to supply custom EV parcel vans in the U.S. and Europe. More importantly, the company reaffirmed prior guidance indicating that it expects to produce 50,000 vehicles in 2023.
This news exceeded Wall Street’s estimates and with that, the company’s stock has reportedly risen 84 percent since the announcement. The overall perception seems to be that Rivian has finally turned the corner in terms of supply chain and operational performance.
Rivian will be reporting its Q2 financial results after the stock market close of business on August 8th.
Our Supply Chain Matters readers are likely aware that we have featured a number of prior commentaries related to Rivian’s continual supply chain related challenges, some of which were, by our lens, self-inflicted.
In a mid-January posting, we alerted our readers to reports that Rivian fell short of its 2022 vehicle production goal and that several top executives had departed the company, including the company’s purchasing head. The EV start-up reported the delivery of 20,337 vehicles in all of 2022, falling short of this company’s highly monitored commitment to produce 25,000 vehicles.
Reportedly, 10,020 vehicles were produced in the final quarter of 2022, a classic hockey-stick sign of ongoing supply chain and production challenges. The company’s original commitment at the start of 2022 was to produce 50,000 vehicles, but that was cut at mid-year.
Gross profit for the prior fiscal year was a reported loss of $3.1 billion which included a net operating loss of $6.8 billion as compared to $4.7 billion in 2021. Included in the results were noted inventory charges and losses on firm purchase commitments of $920 million as of December 31, 2022 compared to $95 million as of December 31, 2021. Rivian ended the fourth quarter of 2022 with a little over $12 billion in cash, cash equivalents, and restricted cash, which was dire in itself.
In an interview with Bloomberg TV (Paid subscription) regarding the latest Q2 operational performance, Founder and CEO RJ Scaringe acknowledged that the start-up still has a long way to go but he is now upbeat about having turned the corner on supply chain challenges and impacts and consequent impacts to daily production.
“Given that the supply chain confidence is there, and given that our operational experience is so much stronger, we’re able to have a level of predictability to the business, that, in the first 12 months, we really didn’t have.”
Responding specifically to the question of how the company is sorting through its supply chain challenges, Scaringe indicated that late last year, Rivian summoned executives representing hundreds of its suppliers to the Normal, Illinois facility for an all-hands get together. He stated that the purpose of this effort was to communicate that Rivian could not have the same situation this year, which occurred in 2022, when the production line was down on a daily basis because of various component shortages. “That proved to be a galvanizing moment, where getting all our suppliers together in a room at the same time helped ensure that this year, we’ve really removed those supplier constraints we felt in 2022.”
We have to add that the automotive sector as a whole is now benefiting from an easing of prior key component shortages, especially semiconductor devices.
Added Moves
While a sit-down with all suppliers may have certainly helped, there were other senior executive leadership and organizational moves that have occurred. As we and other business and industry media have noted, there was turnover at the supply chain leadership level in 2022 including the director of procurement.
For the planned next generation of R2 vehicles, the sourcing and assembly of batteries will all reside in the U.S. in order for vehicles to comply for attractive $7,500 U.S. government consumer buying incentives under the Inflation Reduction Act. A decision made last year to develop and produce the two-motor Enduro powertrain internally has reportedly eased supply chain issues.
In March, we called reader attention to a report by The Wall Street Journal (Paid subscription) which cited unnamed company internal sources that indicated that the company initiated a manufacturing reorganization that included the relocation of portions of the start-up’s manufacturing engineering team to be directly resident at the company’s Normal, Illinois production facility.
During the Covid-19 pandemic, engineers were recruited wherever they could be found, and they reportedly were allowed to work remotely. The result was engineering resources dispersed across the U.S. and at corporate headquarters in Irvine, California, and not co-resident and part of daily communications with production operations.
The report captured the attention of this Editor because of its significance and context as a perceived industry start-up aiming to disrupt the industry, comparably to that of Tesla. Similar is the learning in a painful way that certain industry best practices are just that, practices and management models evaluated by business growth, financial discipline and needs for added supply chain agility. For those in the automotive industry and certainly a wide complement of our readership, the report triggers a response of why it took this long to act on such a need.
Up to this point, Rivian’s attraction in EV powered pick-ups has been the styling and innovative technology, thus prospective buyers placed a large number of online reservations for specific models and vehicle options. The company now acknowledges that prospective buyers have become more frustrated and impatient as to when their reserved vehicles will actually be delivered.
The Wall Street Journal this week cited industry research firm Motor Intelligence that reported that sales of EV powered vehicles in the U.S. surged by 50 percent in the first half of 2023, amounting to an estimated 7.2 percent of overall auto sales. The reported EV sales growth eclipsed the rate of sales for gasoline powered vehicles. However, according to research data from Cox Automotive, inventory levels of EV vehicles at traditional dealer lots or in-transit to customers had grown to upwards of 90,000 vehicles by the end of June, a fourfold increase from the year earlier period. That level reportedly represented approximately 92 days of unsold inventory. The reported factor that is influencing EV sales are discounts and available government incentives.
Yesterday, The Wall Street Journal’s Heard on the Street (Paid subscription) column provided a commentary specifically on Rivian that reminded investors that even in spite of the current surge in stock price, this EV start-up has “lost more than two-thirds of the market value at which it went public in November 2021.”
The column observed that Rivian has not faced much competition to date because “cost-effective pick-ups are hard to engineer” requiring added battery power. The column goes on to state that:
“Given the vast sums required to build EV plants and increase production, start-up brands are in a race to secure funding. Those that can finance their way through the point of positive cash flow will survive, and those that can’t such as Lordstown Motor, are already falling by the wayside.”
We would add from our lens that a further critical learning for any start-up in a transformational setting is that proven supply chain best practices are what the term implies, practices derived from a lot of learning by trial, error and successes. That is ever more important when dealing with breakthrough technologies, especially when design for supply network concepts are altered for the sake of breakthrough engineering design that has not be assessed for volume production needs. While Tesla may have initially been successful in dealing with non-traditional suppliers for innovative designs, the challenges for ramp-up of the Model 3 sedan exposed such weak links.
Once again, Supply Chains Do Matter!
Bob Ferrari
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