It was 5:30 a.m. when Rivian staff began to gather at their Irvine, Calif., office for Wall Street’s opening bell. The predawn start on that November morning a year ago was well worth it. Rivian, the electric-truck company, was going public. R.J. Scaringe, the 38-year-old founder and CEO, was scheduled to open the Nasdaq remotely from Rivian’s cavernous factory in Normal, Ill. Screens were set up in the California headquarters’ café so employees could watch the event live. People lined up for free pancakes. There was excitement in the air. Many of those assembled that morning had equity in the company. As one former staffer told me recently, “We all felt we were going to get rich.”
At the appointed time, Scaringe, a Clark Kent look-alike with preposterously sharp cheekbones, appeared on-screen flanked by two gleaming Rivians. After a brief and faltering speech—who wouldn’t be nervous?—he was joined by his three children, his wife, and hundreds of assembly-line staff. As the countdown music started to build, Rivian employees from Illinois to Irvine began to clap and holler. When the moment finally arrived, one of Scaringe’s sons slammed his hand down on a screen—ding ding ding ding ding!—and everyone went berserk.
For the rest of the day, Rivian staff watched as the share price surged and their wealth surged with it. The company’s stock began trading that morning at $78, raising over $12 billion for the business. The sum made Rivian’s IPO the largest since Facebook’s in 2012 and the sixth-largest in U.S. history. The listing positioned Scaringe as an auto-industry upstart to rival Elon Musk.
There was more to come. Over the next few days, Rivian’s stock rocketed to over $170. At that point the company had yet to deliver a single one of its trucks, which cost nearly $80,000, but that didn’t seem to bother investors. It was suddenly worth more than Ford, which sells 4 million vehicles a year. Consumers didn’t care either. Orders for Rivians climbed to over 70,000 by the end of December. “Some employees made an absolute killing,” the former staffer says. “Hundreds of thousands of dollars in a day. It was nuts.”
But the fun didn’t last. By the end of the year, the share price was falling fast. In May 2022, it reached a low of $20, 80% below the dizzying heights of November. The staff that had celebrated their IPO profits now felt those losses in their own pockets—and in the office pantries. Flush with cash from its IPO, the company had provided free drinks and snacks at its campuses. But by the summer, as management explained in an internal memo, items like coconut water, iced tea, and packaged treats were being discontinued to cut costs. Rivian had big-name backers like Amazon. It had billions in cash. It had a product that investors thought could beat the biggest brands in the business. And it couldn’t afford iced tea?
Rivian is far from the only electric car company to suffer this year. An economy beset by high inflation, soaring interest rates, and a looming recession is not friendly to young, cash-hungry firms whose profitability is unproven. Investors have bolted. Lucid, which had its own, much smaller IPO in 2021, is down over 70%. Even Tesla has lost half its value. But Rivian has fallen farthest and fastest. After a high-flying start, it is now at risk of being the Icarus of the EV industry.
So what’s gone wrong at Rivian? Analysts, investors, and former employees describe a promising company tripped up by what one calls a “perfect storm” of problems—including managerial overconfidence, the daunting costs of manufacturing, and the simple bad timing of trying to scale up a business as the broader economy began to stumble.
A car-obsessed founder and CEO
Scaringe grew up as a car-obsessed kid in Florida. He shared his passion with a neighbor who fixed up old Porsches in his garage. Scaringe helped the neighbor out, and grew to love tinkering with engines—especially extremely powerful ones. He was already determined to run a car company when he enrolled at Rensselaer Polytechnic Institute to study engineering. Scaringe refined his ambition at MIT, where he earned a Ph.D. in automotive engineering and weaned himself off internal combustion. In a warming world, he concluded, we had to learn to live without it.
His obsession with speed, however, remained. When Scaringe started Rivian in 2009 at age 26, his idea was to produce an electric sports car, just as Elon Musk had with the Tesla Roadster. Musk had proved that sports cars are attention-grabbing. But if you hope to make a meaningful dent in the problem of climate change—and earn a profit doing so—sports cars have a fatal flaw: They are impractical, and hardly anybody buys them. They account for just 1.5% of U.S. auto sales. Around 2012, Scaringe changed gears and decided to make electric trucks and SUVs instead.
Scaringe’s pivot was smart for two reasons. First, nobody else was making electric trucks and SUVs, giving Rivian a chance to stand out. Second, drivers love such vehicles. In the U.S., eight of the 10 bestselling models overall are pickup trucks or SUVs. Scaringe was betting that when people started buying electric vehicles en masse, they would stick with what they knew.
Scaringe unveiled his first Rivian models at the 2018 Los Angeles Auto Show: a pickup called the R1T and an SUV called the R1S. The automotive world was thrilled. Scaringe had found the sweet spot between familiarity and futurism. The engineering was cutting-edge, but the design was comfortingly clean and boxy. The only obvious sci-fi touch was a headlamp that wrapped around the front of the vehicle like the space-age spectacles worn by Geordi La Forge on Star Trek: The Next Generation.
Scaringe’s pitch to potential customers emphasized traditional virtues. Rivian’s cars were designed “to take your family to the mountains, to the ski resorts, to grandma’s,” he said at the L.A. show. And yet he hadn’t sacrificed sex appeal. Huge though they were, the R1T and R1S went from zero to 60 in about three seconds—just like a Porsche.
Gearheads were entranced, and so were investors. Over the next two years, Rivian raised over $10 billion on the private markets, including from Amazon and Ford. As the cash came in, the company ballooned. Between 2020 and 2021, Rivian’s headcount grew by more than 220% to over 10,000, as Scaringe’s vision and largesse lured employees from Silicon Valley and auto-industry incumbents. “The offices were beautiful, with row after row of designer chairs,” says the former employee. “You had the sense that nothing was too much trouble. They just wanted to grow, and they attracted a lot of talent.”
On the day of the IPO, Scaringe gave an interview in which he used an appropriately automotive metaphor: “What’s most exciting is the path ahead and how we can accelerate.”
Rivian’s bad economic luck
Since then, however, Rivian has had trouble picking up speed, hampered by what Garrett Nelson, an equity analyst at CFRA Research, describes as “a perfect storm.” Some of its trouble is due to bad macroeconomic luck, but much of it is self-inflicted. Nelson points to a destructive mix of “overconfidence, naivete, lack of experience, and factors outside of their control” to explain Rivian’s bumpy ride.
Let’s start with the bad luck. In one sense, Rivian’s IPO was well-timed. It coincided with the peak of a pandemic-era boom in growth stocks, as investors poured money into tech companies that were innovative but unprofitable. Central banks were keeping interest rates at record lows to grease the wheels of the global economy, and with everyone stuck at home, companies in sectors as diverse as biotech and e-commerce, gaming and fintech were scrambling to innovate and snap up market share. The combination of cheap money and new opportunity drove an investing bonanza, and the electric vehicle industry reaped the riches. As Nelson puts it, “Everyone was searching for the next Tesla.”
What happened as COVID waned is now painfully familiar. First, supply chains ground to a halt, as borders reopened unevenly and the labor market remained tight. Second, inflation spiked along with interest rates. These macroeconomic U-turns couldn’t have come at a worse time for Rivian. The company was entering the phase that Elon Musk once called “production hell”: the eye-wateringly expensive and complex process of building manufacturing capacity at the pace demanded by excited investors and expectant customers. Just as it needed to expand its factories and buy up steel, batteries, and semiconductors, the money supply tightened along with the flow of materials. Rivian missed its first production target after its IPO—and even that was modest. It had aimed to make 1,200 vehicles in 2021, but managed only 1,015 and delivered just 920. The company halved its targets for 2022, from 50,000 to 25,000.
View this interactive chart on Fortune.com
More recently, Rivian hit another bump in the road. In October, its engineers identified a faulty fastener in the steering system that the company said could cause problems in a small number of its cars. It recalled 13,000 vehicles—almost every one it has ever shipped. Recalls are common in the car industry, and often involve hundreds of thousands of vehicles. Rivian’s is small by comparison, but when a recall covers your entire fleet it looks more dramatic. “It was a black-eye moment,” says Dan Ives, managing director at Wedbush Securities.
But Rivian’s troubles were exacerbated by avoidable mistakes. “They have tripped over their shoelaces post-IPO,” Ives says. “The next four or five months were a disaster.”
Rivian’s post-IPO ‘disaster’
Communication has been a recurring problem. In March, Scaringe wrote to Rivian customers announcing an immediate price increase of $12,000 for future orders—and existing ones. He tried to justify the decision in a letter to buyers. “Since originally setting our pricing structure,” he wrote, “and most especially in recent months, a lot has changed. The cost of the components and materials that go into building our vehicles has risen considerably.”
Passing on those costs to future customers might have been reasonable, but changing the price of existing orders looked unfair. The decision created bad blood among customers, who began to cancel their orders in droves, and among Rivian staff. “People inside were really annoyed about it,” the former employee says. “It felt like we had built up all this social capital and goodwill within the community and among customers and that it got eradicated by that one action.” Scaringe reversed the decision two days later after the company’s stock plunged, telling those who had canceled their reservation that they could reorder at the original price. “It’s important to us that we engage with our customers and take feedback seriously,” a spokesperson for Rivian said. “That’s what we did in this case.”
The company has also been cagey about production capacity. In 2019, Amazon ordered 100,000 electric delivery vehicles from Rivian. The deal helped give the carmaker credibility, but the company squandered it in early 2022 by refusing to say whether it had begun to deliver those vehicles by the end of last year, as agreed. Rivian’s reticence made investors question its ability to scale and unnerved its biggest backer. In January of this year, Amazon announced that it was also buying electric trucks from Rivian’s rival Stellantis, a deal that was widely interpreted as “a shot across the bows,” says Ives. Rivian told Fortune that as of early November 2022, more than 1,000 vans it built for Amazon are on the road.
In part, this is a story of typical Silicon Valley overhype. To lure investors Rivian set expectations beyond what was realistic. If Tesla has taught wannabe EV makers anything, it’s that the road to success is long and treacherous. “It’s easy to forget that it took Tesla several years and the opening of a new plant in China to master the science of mass production of EVs and achieve consistent profitability,” says Nelson. And that was without the economic headwinds Rivian now faces.
In a statement to Fortune, a spokesperson said, “Like every automaker on the planet, Rivian has weathered supply-chain and manufacturing challenges brought about by the pandemic, and we adjusted our targeted 2022 production numbers when appropriate. We remain on track to meet our adjusted production target of 25,000 vehicles this year.”
View this interactive chart on Fortune.com
But according to some former employees, the management culture at the company contributed to its problems. Last year, Laura Schwab sued Rivian after she was fired from her job as a marketing executive, alleging that she was let go after challenging management on a number of subjects, including their pricing strategy: She thought the vehicles were too cheap to be profitable. The company, she said, suffered from a “toxic bro culture that marginalizes women and contributes to the company making mistakes.” According to a Rivian spokesperson, the firm reached an “amicable resolution” with Schwab earlier this year, adding that “Ms. Schwab’s allegations do not reflect the values and culture of our company.”
Another former Rivian staffer, however, says that at times the leadership appeared to be “a lot of boys who knew each other, getting together to go off-roading in the desert and making decisions that weren’t necessarily made from a cold business perspective.”
In a statement, a spokesperson said, “Our management team brings global expertise, rich diversity of background and thought, and a common environment-forward mission to their work at Rivian. We listen to employees at all levels of the company and incorporate their feedback to make it better.”
Layoffs, ‘liquidity concerns’—and stellar reviews
This summer, management did make a cutthroat decision—it laid off about 6% of its workforce to direct more resources toward production. So far this year, Rivian has produced 14,317 vehicles, and says it’s on course to reach its target for 25,000 for 2022. Demand is high, with 98,000 Rivians on order, and the reviews are strong. MotorTrend, a car magazine, called the R1T “100 percent amazing,” and named it Truck of the Year. “We’re convinced that this is the electric truck of the future,” the reviewer added. “No other truck on the market can match its combination of on-road agility and off-road prowess.”
But the pressure on Rivian remains intense. First, there is the rate at which the company is burning money. Right now, it has around $15 billion in cash and cash equivalents. Yet, according to Bloomberg Intelligence, Rivian could go through as much as $19 billion between now and 2024, when it expects to open a second manufacturing facility in Atlanta. “Liquidity concerns are going to continue to grow over time,” Nelson says, “and that will weigh on the equity value.”
Second, the company’s window of opportunity to establish itself as a dominant force in the EV market is narrowing. Ford has been selling its electric F-150 pickup truck since April, and it is about a third cheaper than the R1T. GM is also planning to launch an electric truck next year.
President Joe Biden’s recent Inflation Reduction Act includes a tax credit for EV purchases, which applies to vehicles costing less than $80,000. Rivian is unlikely to benefit. Although the R1T and R1S start just under that threshold, if customers add an option or two—which almost everybody does—they surpass the cap. Rivian is planning a range of cheaper models, called the R2, but these vehicles will be produced at the Atlanta factory, which hasn’t been built yet.
As the EV contest builds, Rivian can’t afford mistakes. “They have a pivotal six to nine months ahead,” says Ives. “They need to execute on the vision without any more stumbles.”
