Rivian’s R2 EV bets could turn it into a household name like Tesla

Park City, Utah – Rivian CEO RJ Scaringe is animated as he makes his way through the displays of the electric car maker’s new R2 SUV.

The company’s founder is moving quickly from the electric vehicle’s suspension and software systems to various models of the R2 that will soon begin reaching American consumers, including a roughly $45,000 entry-level model that Rivian said Tuesday will be delayed from late 2027 to next summer.

But there’s concern in Scaringe’s voice as he speaks to employees and media at an R2 launch event in western Utah and prepares to launch the car, starting Tuesday for current reservation holders, to the world.

Scaringe founded the electric vehicle maker in 2009. He has grown Rivian into a $22 billion market cap company that ranked highest in Consumer Reports’ most recent customer satisfaction survey, but lowest in the industry’s predictive reliability because of consumer-reported problems with its early vehicles.

This is unusual for a car brand. Typically, the more problems a brand has, the lower its customer satisfaction rating – but not Rivian.

It’s a testament to the brand for Scaringe, a 43-year-old car enthusiast and technology entrepreneur. It’s also difficult to maintain that kind of customer satisfaction as a brand grows, which is Rivian’s goal with the R2.

The new SUV aims to transform Rivian from a niche electric vehicle maker that sells luxury vehicles — largely in California and states where electric vehicles sell well — into a more mainstream brand that can’t just compete with the leading U.S. electric vehicle company. Tesla But with broader mainstream car brands like Jeep and Subaru.

“Its goal is to be a mass producer,” Scarring told CNBC. “Sure, we will rely on some Tesla customers, but the market for non-Tesla customers is many times larger.”

Wall Street analysts have described the R2 as a make-or-break moment for Rivian, comparing Tesla’s transition from its expensive first-generation electric vehicles to the flagship Model 3 and Model Y that currently dominate the US market.

Scaringe does not object to such a classification.

“When you build a company from scratch, everything is hit or miss,” he said. “There is no company if things don’t work out.” “The saying it’s ‘make or break’, of course it is.”

Rivian shares fell about 5% during intraday trading on Tuesday following the announcement of the new timing for the entry-level model as well as the expert reviews released for the R2, which were largely positive.

Rivian also hopes to achieve its main goal with R2: profitability. The electric car maker lost $3.6 billion last year, while delivering only 42,247 vehicles.

After promising investors that it would be profitable on an adjusted basis by 2027, Rivian earlier this year withdrew that goal without revealing a new time frame for achieving the milestone. This comes at a time when the automotive sector lost about $6,000 per vehicle delivered during the first quarter of this year.

Scaringe reiterated to CNBC that Rivian now expects to achieve the goal once it sets up a multibillion-dollar factory in Georgia. Production is scheduled to begin in late 2028 and could reach full capacity by the end of this decade.

Scaringe said Rivian will reach profitability on a per-unit production basis with R2 this year. But he said the company needs a greater range than the 160,000 units already planned for the car at its current plant in Normal, Illinois, to achieve profitability.

“Georgia brings the volume to generate a gross margin on auto sales that covers everything,” Scaring said. “The good news is that we’re already starting to reduce our burn rate. That’s the beauty of scale, and all of these vehicles are cash flow positive at the vehicle level.”

Once the Georgia plant is fully operational, the company’s production is expected to include R1T pickup trucks, R1 and R2 SUVs, R3 crossovers, robotaxis, and delivery trucks. The company also said it plans to introduce additional vehicles based on the R2 platform.

Although the R2 looks similar to its roughly $80,000 R1S SUV, Rivian said it has cut the vehicle’s construction material costs in half, reduced production complexity and achieved other significant efficiency gains.

Scaringe said each R2 model — with prices starting at about $45,000 to $58,000 — will be cash flow positive for the company: “That’s a requirement. Every vehicle is gross margin positive.”

This positive cash flow includes a $45,000 entry model that the company raised after facing online backlash over the timing.

Scaringe said during a media roundtable that the change was made to address potential perception concerns about the R2 being a more expensive vehicle as well as “the desire to get it out there.”

“Even though the base model gets a lot of attention, very few people end up buying it,” Scaring said. “It doesn’t affect the economics of the business much, but it generates a lot of noise.”

Scaringe said that once full production of the R2 begins, the company expects the sweet spot for sales to be at under $50,000, which Cox Automotive reports would put slightly above the average U.S. selling price of $49,000 and below the average selling price of electric vehicles of more than $55,000.

That price and vehicle size put it in the heart of the compact and midsize SUV markets, of which Cox Automotive reports accounted for 45% of U.S. sales last year.

For electric vehicles in particular, the Tesla Model

“I think it will do well,” said Stephanie Valdez Streety, director of industry insights at Cox Automotive, an investor in Rivian. “Rivian has a strong brand and there is room for another compelling vehicle, especially in this midsize segment.” “It’s not just electric cars, they’ll try to compete and pull away from them [internal combustion engine] Vehicles as well.”

Valdez said that the challenges facing Rivian are still many. In addition to slower-than-expected adoption of electric vehicles and a lack of charging infrastructure, the company also needs to prove it can quickly ramp up production without quality issues.

Among non-electric vehicles in these segments, the Toyota RAV4 and Honda CR-V lead the compact SUV segment, while the larger Ford Explorer and Jeep Grand Cherokee are the midsize SUVs.

“We want people to just look and say this is the best car in this price range, and because of that, it will attract new customers, non-EV customers,” Scaring said.

To do this, Scaringe believes Rivian will also need to become a leader in software and automotive technologies such as automated driving and artificial intelligence.

Rivian has received external validation for its emerging technology efforts in the form of a $5.8 billion deal with Volkswagen that includes putting Rivian’s software and electrical engineering into the German automaker’s future electric vehicles.

Volkswagen is now Rivian’s largest shareholder, followed by long-time backer Amazonwhich remains its largest customer for delivery vehicles.

The R2 will launch with an Advanced Driver Assistance System, or ADAS, which will largely control itself under certain conditions while monitoring the driver, but it won’t have an AI voice assistant until later this year. Both systems will continue to be updated through over-the-air updates, according to Rivian.

Scaringe said he sees the company’s emerging software services as just as important as vehicles.

“You need both. It’s as if the question is which heart or brain is more important in a human being. You can’t survive without both,” Scaring said. “It’s a false duality. I don’t see it as separate.”