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The Street
The Street
Luc Olinga

Tesla Big Rival Rivian Makes Tough Choices

Economic uncertainty is forcing companies to make tough decisions now, so they're not caught off guard if things get worse. 

Indeed, the specter of a recession, fueled by inflation at its highest in 40 years and a rise in Federal Reserve rates, suggests that economic activity will slow down markedly. And it has

Companies, especially in the technology sector, have already announced cost-cutting measures, such as slowing the pace of hiring or freezing it. Some companies have gone so far as to rescind job offers made to candidates (Coinbase (COIN)), while others are considering massive layoffs (Ford (F)).

Rivian Cuts 6% of Its Workforce

Rivian, considered one of Tesla's most serious rivals among young car manufacturers, has just made some difficult choices to enable it to operate without too much damage in coming months. 

The Irvine, Calif., carmaker is cutting 6% of its 14,000 employees.

The decision was announced by Chief Executive RJ Scaringe. In an email to the group's employees he explained that inflation, soaring raw-materials prices and rising interest rates are making it difficult for companies to raise new money and finance their investments.

"We need to be able to continue to grow and scale without additional financing in this macro environment,” Scaringe told staff. 

"Today we announced the difficult decision to reduce the size of the Rivian team by approximately 6%," a spokesperson confirmed in an emailed statement.

"This decision will help align our workforce to our key business priorities, including ramping up the consumer and commercial vehicle programs, accelerating the development of R2 and other future models, deploying our go-to-market programs and optimizing spend across the business."

Go-to-market programs include charging and service infrastructure.

The upstart EV producer's roadmap in the next 18 months is busy: ramping and enhancing the R1T pickup/truck and R1S SUV, as well as its electric delivery van, the EDV, for which Amazon is the first customer. AMZN

The company is currently increasing production to meet significant demand. The order book as of May 9 exceeded 90,000 vehicles, the company said in May when it reported first-quarter results.

Rivian Shares Have Slumped

Rivian said in May that it had $17 billion in cash as of March 31, and it said that that'd be enough to cover its spending through the launch of its lower-cost vehicle, R2, at a planned new factory in Georgia in 2025.

In his email, Scaringe said the layoffs wouldn't affect the manufacturing operations in Normal, Ill., Rivian's current factory. 

Terminated employees will get 14 weeks of paid severance, health care and additional benefits.

"We’re deeply grateful for each departing team member’s contribution in helping build Rivian into what it is today," the spokesperson added. "They will always be part of the Rivian story and community."

The company recently delivered some good news to investors: During the second quarter it produced 4,401 vehicles at the Normal facility, up 72% from the previous quarter.

"These figures remain in line with the company’s expectations, and it believes it is on track to deliver on the 25,000 annual production guidance previously provided," the carmaker said at the time.

It was a big relief for investors as supply chains have been deeply disrupted by the covid-19 pandemic. 

Shortages of chips and soaring prices of raw materials such as nickel, palladium, and cobalt add to the challenges of assembling cars. All these hurdles drive up costs, widening the losses for young automakers like Rivian.

The company on Aug. 11 is expected to indicate how these difficulties will affect its business in the second half, when it reports second-quarter results.

Rivian's shares were down 69% to $32.01 in 2022 through the close of trading on Wednesday. 

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