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Big Technology Podcast
Rivian's CEO on Elon's Influence, Affordable EVs, and The Grid's Risky Future — With RJ Scaringe
00:54:52
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- [00:00]
Alex
Let's Talk with the CEO of electric carmaker Rivian about the state of EVs, the challenge of competing with Elon Musk, and whether the globe can compete with China's electric vehicle Boom. That's coming up right after this.
- [00:14]
RJ Scaringe
Hey, I'm Michael Kovnat, host of the Next Big Idea Daily. The show is a masterclass in better living from some of the smartest writers around. Every morning, Monday through Friday, we'll serve up a quick 10 minute lesson on on how to strengthen your relationships, supercharge your creativity, boost your productivity and more. Follow the Next Big Idea Daily wherever you get your podcasts.
- [00:38]
Alex
I'm Tomer Cohen, LinkedIn's chief product officer. In my new podcast, Building One, I interview some of the best product builders out there. People at the intersection of dreaming and building and learning. Together, you and I will learn from their experiences. If you're just as curious as I am, follow Building One wherever you listen and check out the conversation on LinkedIn. Welcome to Big Technology Podcast, a show for cool headed nuanced conversation of the tech world and beyond. Today we have one of my favorite CEOs in the tech world. Rivian CEO RJ Scaringe is joining us here to talk everything EVs, including what's going on with his company, his joint venture with vw, some Elon Musk, and then also China's electric vehicle boom. Rj, great to see you. Welcome to the show.
- [01:23]
RJ Scaringe
Thanks Alex. Good to be on with you.
- [01:25]
Alex
So last time we spoke I was interviewing you for a profile for gq and since then, here's a quick recap of what's happened in history. Elon Musk has endorsed Donald Trump. He's of course the Tesla CEO and Rivian competitor. Musk is. He's been intimately involved in the transition and he's being called the first buddy. And since he's join the transition or since Trump's election, Tesla stock has gone up 40%. I just want to ask you just on a personal level, is that a bit surreal to you?
- [01:57]
RJ Scaringe
Oh geez. I mean, I think the broader state of just how politicized electric vehicles have become is a bit surprising. I think Tesla and Elon having a relationship with President Trump is actually helpful to electrification. It's certainly going to provide the perspective of the importance of EVs. So I look at that as a positive. And we, as you've heard me say before, we're big fans of Tesla and big fans of what Elon and the team there have built. The products, the technology, certainly how they've helped really create momentum around the movement towards electrification.
- [02:39]
Alex
But you never look at the relationship between Elon and Trump and be like, can't really believe that that's happening.
- [02:45]
RJ Scaringe
I wouldn't have expected that. On the list of things I would have predicted a year ago, this wouldn't have been one of them. But electrification, the drive towards sustainable energy, unfortunately this is a political issue. It should not be. This is a human issue. And having folks that are pro EVs on both sides of the aisle is a really important thing. And so Elon taking that role certainly I think could be helpful. Yeah.
- [03:06]
Alex
And you mentioned it could be good for EVs and it's weird. Tesla stock went up 40% since the election. Rivian stock is kind of flat. But just talk about like what Elon might be doing there. I wouldn't ask you to speak for him. But let me just ask you, if you were the first buddy, what would be some EV friendly policy that you'd want to put forth? Anything about tariffs, anything about electric vehicle credits? Like what would you want?
- [03:32]
RJ Scaringe
I think I'd answer it from the perspective of what's best for the world. And what I truly and deeply believe is best for the world is what we need to have multiple choices. As a consumer, that means lots of different companies building highly compelling products. Those products need to give customers choice, which is ultimately what's going to drive us from sub 10% EV adoption to 100% EV adoption. And so the mechanisms to help drive that are both the carrots and the sticks. The carrots typically are consumer facing. And we had, I've had a $7,500 tax credit that's consumer facing. The sticks or sort of forcing mechanisms are the fines that manufacturers have to pay if they're not building vehicles that hit certain greenhouse gas emission standards or hit certain levels of electrification. Zero emission vehicle credits. And the credits are helpful in that they don't cost the government anything. So we actually sell our excess credits to other manufacturers. So it becomes a cost to manufacturers and a source of income for those that are building more efficient vehicles. And you have Tesla, of course, is the biggest player in the credit space just by virtue of them being the largest builder of electric vehicles.
- [04:49]
Alex
Yeah, and it's all margin for them. It was a big part of their big earnings report recently.
- [04:53]
RJ Scaringe
We sell credits and it's great. It's all margin. We sell the credits to other manufacturers. So I think the credits is actually a really helpful way to help direct investment within the manufacturers and ensure that when 2030 rolls around or 20, 35 rolls around that there's multiple companies that have made the investments and made the commitment to electrification. So I think any roll back there is actually. It may in the short term help car companies, but in the long term, car companies that back off their electrification strategies are going to find them find themselves in a really challenged position as it gets out to 20, 30 and beyond, where the pure play folks like us or Tesla have had no other choice but to become cost effective at building really compelling products. So if I had to predict what's going to happen, I think we're going to probably see changes in both those categories. It's hard to say exactly what.
- [05:50]
Alex
Right? Yeah.
- [05:51]
RJ Scaringe
But I do think mechanisms that help drive towards the future state are important.
- [05:56]
Alex
And not until you mentioned that did I think that, oh, it's going to be very interesting in the White House where one of the White House's core constituencies is always the automakers in Detroit. But now he's got like the chief EV cheerleader out there saying, hey, how about us? So that is going to be a very interesting thing to watch as this all gets going. So I won't spend the whole conversation speaking with you about Elon, but let me ask you this. It seems like the identity of a Tesla owner is a little bit in flux, right? Maybe you support environmentalism, maybe you're just pro elon and you want to be on board with the mega train. So we're not really sure what driving a Tesla says about you right now. What does driving a Rivian say about you? I would think, you know, and when you just came out with like the pickup truck or the big SUV would be like, I am a someone who wants to drive a big truck but also be environmentally conscious. But you're also expanding into a bunch of different new models. So what is the identity of a Rivian owner?
- [07:00]
RJ Scaringe
I love that question. So when you think about a product and then the brand that comes out of the product, I think it's easy sometimes to get caught up in an attribute. So to confuse an attribute of the product, let's say acceleration or off road capability, with the emotional representation of what the brand stands for. And so we've been really intentional to try to make sure we're positioning the company in a broader way than just the capabilities of the product set. And so you've probably felt this or seen it in the way that we manifest across every touch point, whether it's a vehicle or charging station, a service location. One of the key words we think about is inviting and inviting in the sense that this is as a brand, as a company, we want to invite people into electrification, we want to invite people into new technology that's from all walks of life. So that's not something where we're trying to invite just one side of the political spectrum or another side, but trying to make it such that it's equally appealing. And part of that you've seen emerge in our communities. So our communities are very active. We have one of the most active user bases where our customers engage with each other. They go on trips, they explore, they see things together, they see new parts of the world together in a way that we dreamed about back in 20, 20, 21, I remember we would have presentations and we'd say, boy, if we do this really well. And we created a product and a brand that invite people to explore, invite people to go do the kinds of things they want to take photographs of. That's. That's going to span age demographics, it's going to span political beliefs, it's going to span religious beliefs. And we've. We're witnessing it.
- [08:49]
Alex
What I'm hearing from you is basically like, you're just not going to take this moment and say, we're going to, you know, sort of politicize it and make it for the environmental focus. And basically what you're describing is a car buyer is the person that's going to buy the Rivian.
- [09:02]
RJ Scaringe
Yeah, I think we do. I think a lot of our customers have more of a leaning towards caring about sustainability in different ways. But.
- [09:10]
Alex
But the thing is, one thing I.
- [09:12]
RJ Scaringe
Noticed, drive a fork between people because.
- [09:14]
Alex
Of that, for sure. And the one thing that I'm noticing, though, is also someone who drives Rivian today has to be well off. Right. The cars start, I think, around $70,000.
- [09:25]
RJ Scaringe
Yeah.
- [09:26]
Alex
And I. You have to have some money to be able to do that. But looking ahead, you are developing cars that are going to cost in the $45,000 range to 50,000 range. Yeah. And those are going to roll off the lines, I think, in 2026. So can you just very briefly describe the state of the product line that you have today and what you're working towards?
- [09:47]
RJ Scaringe
Yeah, I'm glad you talked about this. The. The launch product really think of as a flagship. It's a sibling set truck and SUV, as you said. Starting price of around $70,000. The average transaction price is closer to $90,000. So, you know, these are, you know, $90,000 on average. These are expensive vehicles.
- [10:07]
Alex
Yeah, I've driven that Pickup truck. It is fun to drive. Very smooth.
- [10:11]
RJ Scaringe
It's great.
- [10:11]
Alex
You don't feel like you're driving as big of a car as you are. And yeah, when you hit the accelerator, it really, really gives it a go.
- [10:20]
RJ Scaringe
Yeah, yeah.
- [10:22]
Alex
And by the way, for the, for the Tesla fans, I'm happy to have Elon on the show if he wants to come on. I'm going to drive a cybertruck. So this is not a stick it to Elon interview. I just want to put that out there. But anyway, continue.
- [10:35]
RJ Scaringe
That's great. Yeah. So in the, in that premium segment, you know, if we think of it as vehicles priced over $70,000, the, the R1 product line has been extremely successful. The R1s is actually the best selling premium SUV in the state of California. Not the best selling premium electric suv, the best selling premium SUV period in California. Across the whole US it's the best selling premium electric vehicle. So the product and the brand have really resonated with folks that can afford and we've seen a really broad cross section of buyers. So people that are trading in everything from high performance sports cars to off road vehicles to Teslas to pickup. So it's a really nice broad funnel of interest we've drawn in. So the goal of course with the lower priced product is to take that market share success that we've had and apply it to a much, much larger audience with a price point that with R2 starts at 45 and then with R3 starts considerably lower than that.
- [11:37]
Alex
What's considerably lower than that?
- [11:38]
RJ Scaringe
We haven't announced yet. I knew you were going to ask that, but we haven't announced yet. But meaningfully lower. And of course the goal is to continue to make the brand, the products, our company, accessible to more and more people. And the reason we started at the high end is it shouldn't be surprising with low volumes and building out scale. We wanted to have a product that had enough price that allowed us to build scale, build capabilities and then put us in a position to then launch a very high volume product with a lot more capacity and much more built out supply chain for our, you know, for our next product.
- [12:15]
Alex
Okay. And so you have those in the pipeline. And now you're starting a joint venture with vw. It just closed. We're recording on the week that it closed. We're going to air this the week afterwards. It's a $5.8 billion deal. There's a lot of moving parts there. VW is going to use your technology, you're going to get some money, a billion dollar loan, right off the bat. And I'm sure there are other parts that I'm not aware of. So talk a little bit about why it makes sense to partner with vw. One of the things that you mentioned earlier was that you want to make sure that there's a lot of EVs and all different types of models that are available to lots of different people, and that's the way that this is going to get off the ground. And of course, the VD VW Group has Audi and Porsche and vw. And is this sort of the way to get those different models to like, electrify these models and then sort of make it available to lots of different people?
- [13:14]
RJ Scaringe
Yeah, I mean, I couldn't be more excited about the Volkswagen relationship and partnership. We started these discussions more than a year and a half ago. And, you know, a deal of this size and this complexity certainly takes time. But, you know, Volkswagen as a group is the second largest vehicle manufacturer in the world, very close to the largest in terms of size, in terms of number of vehicles. And the reason I started Rivian was to have as much impact as possible and to help drive and accelerate the transition to renewable energy and sustainable transportation. So the opportunity to take our technology and help Volkswagen Group create products that are highly compelling and that will pull more customers in across a variety of different form factors, price points, brands, markets across the planet was really, really enticing and exciting. And of course, the technology we developed is really strong. And it's. You know, I think there's really two companies in the world that have this level of vertical integration and an architecture that's used hardware consolidation to massively simplify the topology of computers, which is us and Tesla, of course. And so Volkswagen has really leaned in with us. And so the $5.8 billion deal reflects just the scale of this. I think often, as we've talked about this, it's not fully appreciated how big of a commitment this is beyond the capital from Volkswagen to build architectural dependency around our hardware stacks. That's the ECUS and compute platforms, and then the software platforms that we built across their whole brand portfolio.
- [14:50]
Alex
So can I ask what that means? Does that mean like the Porsche is going to have Rivian electrification and battery within it or create a model?
- [14:58]
RJ Scaringe
So the deal is just for the. Basically our computer architecture. So what we call ECUs, electronic control units, and then the software that runs on them, it doesn't include batteries, drivetrain. It also doesn't include autonomy, it doesn't include vehicle platforms.
- [15:13]
Alex
You have an autonomy program?
- [15:14]
RJ Scaringe
Oh, yeah, yeah.
- [15:16]
Alex
Last time we spoke, didn't come up. It didn't seem like you guys were going to pursue that path, but that's new.
- [15:22]
RJ Scaringe
I'd say the autonomy, if you're serious about being a player in automotive, it's not like a choice. It's so fundamental to the future of transportation. So we just launched a Gen 2 vehicle. This was a big effort, but we completely remapped how we did our platform. We brought everything in house. So we have 55 megapixels of cameras on our vehicle. It's the largest number of megapixels outside of China. We have five radars, and then we have a very powerful compute platform. And we've designed, of course, this in house. And the beauty of what's happened in Autonomy is it's really requires a closed loop, like heavy flywheel of data where you have data coming in off the vehicles, you see unique incidents or unique events and you use that to train the model. And so we've designed that entire data pipeline to allow a really robust layer of training. And of course, that training takes a lot of, you know, H1 hundreds and it's a lot of compute, but that's what we're building.
- [16:30]
Alex
But you're pushing towards full autonomy, or is this partial?
- [16:33]
RJ Scaringe
So what we have today is if you get into a Rivian, you put it on the highway, it will drive itself on the highway, it can change lanes on the highway, but it doesn't leave. When you leave the highway, you retake control. And so what will happen for us is we'll continue to grow and expand the number of roads and the types of roads that the vehicle can operate on.
- [16:51]
Alex
Okay, so back to vw. You're going to be providing all this computer work for their cars. And so are they just going to replace what they have in there or use ingredients of it? Like if I'm driving a Porsche, am I going to be on like the Rivian system?
- [17:06]
RJ Scaringe
Yeah. So let me first describe how, with the exception of us and Tesla, what a vehicle network architecture looks like. And it's, it's useful to just have a little bit of history on it. So if you go back to the early 1960s, cars didn't have computers in them. They were completely mechanical. Any controls in them were analog. And one of the first sets of electronic control units to make its way into a vehicle was for fuel injection systems, somewhat ironically. And those fuel injection systems were controlled with these little computers. Those little computers were built by companies like Bosch, and that Began the slow process of seeing computers increasingly get used across the vehicle. And as that happened, we went from a computer that's controlling, let's say, the fuel injection system to in some vehicles today, 50 to 100 small little computers placed throughout the vehicle that are all supporting some specific function. Maybe it's a computer to raise and lower the windows, maybe it's a computer to control the seat settings, maybe it's a computer to adjust the climate control, the air conditioning system. But we basically witnessed this massive proliferation of a highly disorganized, highly function based computer architecture. And all those computers are developed by tier one suppliers. Those tier one suppliers write the software on them. And as a result, it's very hard to make an update to very simple things. So take for example, the sequence of what happens when you walk up to the car and it unlocks. You have, you know, an antenna that's controlling communications with the car. You have the door unlock mechanism, which is another computer. You have the seat adjustment for making it easier to get in and out, another computer. You have the lighting, which is another computer. You probably have something that's emitting some sound or noise.
- [18:59]
Alex
There's lots of computers in the car.
- [19:00]
RJ Scaringe
10 computers that have to just do that open, close sequence for the car. So to make a change to that experience requires several, in that case, probably 10 suppliers to coordinate a software update. And it's absolutely fundamentally a flawed and wrong architecture. So what you'd want to do is consolidate the number of computers down and have a number of zonal based or geographically based computers. And so these things are called zonal architectures. That's what we've developed and it's much cheaper because you cut out 90, 95% of the computers in the car. You have a much smaller number of more powerful computers and they do a lot of things. And so that's what we've built. And so to your question, if you're driving a Porsche or an Audi, a few years from now, it will have Rivian computers in it, and those Rivian computers will be running Rivian software. But the way it drives, what it looks like on the screen, internal combustion versus electricity. Yeah, that'll be completely just, you know, specific to the brand.
- [20:01]
Alex
Have you talked about also doing a deal that puts your, some of your electrification in their vehicles?
- [20:07]
RJ Scaringe
Well, there's lots of ways we could expand the deal beyond electronics, but we haven't, we haven't said anything publicly, but I'd say this, we, we've engaged.
- [20:15]
Alex
It sounds like you have had that, that conversation Those are gonna say we've.
- [20:19]
RJ Scaringe
Had all kinds of conversations with different manufacturers over the years, and I couldn't be more excited about the potential of what we're building with Volkswagen, Volkswagen Group across their brands. So there's certainly potential there.
- [20:35]
Alex
So what do you get from them outside of money?
- [20:39]
RJ Scaringe
So one of the challenges that we have in building and growing our business is sourcing scale. And so now if you imagine negotiating, let's say a processor for R1 and R2 volume, you can get a certain level of volume if that same chipset is being used across Porsche, Audi, Volkswagen, Bentley, Skoda, you know, a handful of brands, you know, with much higher volumes, you can really accomplish advantage pricing. It also allows us to, on a lot of the core platform that we're building, and this is what we've done in setting up the joint venture, develop some of these core building blocks that can have the benefit of sharing the development cost across many different products. So it makes a lot of economic sense or industrial logic sense to have one platform in terms of software, in terms of electronics that can be applied to many, many different brands, many different portfolios, many vehicles.
- [21:37]
Alex
As you're talking, it seems to me like it would make a lot of sense to just merge these two companies. Why is it important to you to stay independent?
- [21:46]
RJ Scaringe
Yeah, well, again, to be clear, this isn't. We're not like the things that customers will experience, they'll experience like better over the year updates, but they're not going to. If you're in an Audi, you're not going to see Rivian parts. And if you're in a, you know, if you're in a Rivian, you're not going to see Audi parts. So, you know, it's really at the software level. So I think the way I look at it is we're building a company that designs and develops vehicles, but we also have a huge technology focus. And so we also embedded within that is a technology company. And clearly, as demonstrated by this deal, we're selling technology. So we have a clear business line that's in addition to just the vehicles themselves.
- [22:29]
Alex
Yeah. And when you talk about the advantage in negotiation with suppliers, to me that really seems like maybe an underappreciated part of this, just given the state of the Rivian business today. Now, obviously your cars are on the road, they're selling well, they work well. Like I said, I've driven it, I liked it a lot. But there's also business challenges. And you know, you look at the billion dollar loan that VW is Giving right away. Also the state of losses at Rivian. There have been multiple quarters of billion dollar losses. There was a billion 1.5 billion, Q4, 2023, we're talking in Q4, 2024, 5.4 billion lost last year. You're losing 40,000 per car today. How sustainable is that and how do you plan to flip that? Because I know the plan is to flip it.
- [23:19]
RJ Scaringe
Yeah, but if the plan's not to flip it, we might as well just shut the doors. Yeah, of course. So I guess there's two ways, two things to think about here. So the first is there's a level of R and D expense and gna opex that are necessary to build a business like what we're building and to be world class and leading in terms of technology. And that means there's a caloric burn of number of people necessary to develop that much technology. And today it's outsized relative to our scale because we're not developing all this technology because we're just going to sell two premium products. It's because we plan to sell many millions of vehicles a year, but we have to grow into that. So there's a heavy investment, call it like a forward investment in technology, build out, which has always been the plan. Similarly, we also need to go build ahead on service and go to market infrastructure and service in particular takes a ton of money in the beginning to build. It's lots of brick and mortar sites, lots of training of teams. Fix the car, something happens, it's very expensive. But in the beginning it's all cost, it's all opex. But over time it actually becomes very profitable and once it's profitable, it becomes a really wonderful tailwind. Tesla is a great example of this. One of the big tailwinds they have is they have a great, you know, highly profitable service arm. So that's one side of it. So that's getting built out and that's just the nature of what's going to consume cash, first in the short term.
- [24:56]
Alex
The other, before we go to the next side, can I just say two things? First of all, the company's 15 years old, so how much investment is there going to be until it starts to pay off in profitability? And then second on the service part in particular. One of the things I hear from Rivian owners is it's quite expensive to repair the car. So I'm curious if that's something that you're planning to address in the future.
- [25:18]
RJ Scaringe
On how much more like this is. I'll get to that. Sort of to answer the full question first, but the part of it is the vehicles themselves have to start to make money and there's a fixed cost element to that. But the efficiency of how we're developing technology is still very high. So we've built really something that no one else has built other than Tesla with the capital being deployed on the product side and have award winning products between consumer and commercial. We haven't really talked about the van, but the van is, I would argue, without question like the best delivery van.
- [25:50]
Alex
I see it all over the place in Brooklyn delivering Amazon packages.
- [25:53]
RJ Scaringe
Yeah, it's the best delivery van in the world. But so that's like, that's part of building out. That's been the plan on the service side. It's, you know, it's always highly circumstantial idiosyncratic around what's the cost of a service event. And so we, we track this all really closely. There are certainly some repairs that are more expensive for us by virtue of us not having a lot of service infrastructure in place. So if you break down in the middle of nowhere or in an accident that's very far from Rivian location, you just, because there's no infrastructure there to support it is more expensive. And that's one of the reasons we have to go build that out. And fortunately for our customers, that really gets covered through our warranty. So the warranty period is something we have to eat. The greater cost of, let's say being 100 or 200, 300 miles from a service location, but that's being solved really quickly because of how fast we're building the infrastructure. But to come back to the broader question, which is when do we start to make money? A really core part of this is getting our cost of goods sold to be meaningfully below what we're selling our vehicles for. And this is sometimes a hard number to fully appreciate. The fixed cost versus the variable cost aspect. And our CFO and I try to talk to this a lot in our earnings calls, but just the baseline of running a plant, a supply chain, the infrastructure to support that means that you need a certain level of volume just to cover those fixed costs. And the plant that we've set up in Illinois, our normal plant, will have 215,000 units of capacity between R1, R2 and EDV. And we're using a small fraction of that today. So there's fixed cost disadvantage or you might say like there's a lack of fixed cost absorption that's happening, which has a compounding challenge in the short term. But even with that, we've continually said this, we have a pathway before the launch of R2 to start to demonstrate the profitability of the business. And really key to this is taking the bill of material cost, that's what we pay all of our suppliers for the parts, down quite a bit. And what's been, just to give you a little history on that, what's been really challenging there is most of our, not most, 100% of our bill of materials for what we launched with was negotiated in 2018, 2019. And if you sort of wind the clock back to 2018, 2019, this was before we had put any vehicles on the road. Very few people even knew what a Rivian was. We didn't have a plant, the auto industry was at peak volume. So the suppliers weren't really eager to take on risk of a new company. So we had to just to get parts, we had to pay a significant what I'd characterize as a risk premium. And we rationalized it by saying, well, to launch we have to just of hold our nose and take the fact that we can't negotiate any better pricing today. And the logic was once we launch, the success of the product will allow us to renegotiate those rates down. Of course, what we didn't predict was Covid hitting in 2020 and then launching in 2021 when the supply chain was a disaster, going through one of the worst crises sort of in the history of the automotive supply chain. So not only did we not get to negotiate pricing down, but we had to battle to not get the pricing to go up too much. And there was new premiums on top of the other premiums. So it was just an absolute bare knuckle fight and hindsight's 20 20. But one of the challenges that compounded all of that is we launched three products at the same time. We launched a truck, an SUV and a van all at once. So we had three supply chains, thousands of parts, hundreds of different suppliers that were just trying to manage, all of which were asking us for more money. So fast forward to today. We had a major shutdown of the plant, intentional where we shut down the plant, replaced about half the bill of materials with new suppliers, and we now have a much healthier supply chain. And we're going to start to see that here in Q4 where we've negotiated more than 20% savings just between Q1 and Q4 of this year out of our bill of materials. And we're going to continue to see those savings come in over the course of 2025 and even into 2026. But all that together is leading to. I put it like this to my dad a couple of weeks ago. I've never been more confident in the business. The long term of R2 and what that represents and the market desire for a brand of products that's unique and distinct, but also just what's happening operationally for us as a business and all the learnings that have gone into.
- [30:34]
Alex
I was just watching one of your interviews with the New York Times where David Gillis brought up this tweet that Elon Musk had that you guys would be bankrupt within six quarters and you threw up your hands. But suffice it to say, you'll be around to ship the R2 in 2026.
- [30:50]
RJ Scaringe
Yeah, just look at the numbers on it. We've got just under $7 billion in cash with the Volkswagen deal. Another $5.8 billion coming in. You've said a couple times we have debt from Volkswagen. Just to clear. We've had $2.3 billion coming from Volkswagen to date. There's a few additional tranches of capital that come in. Actually, the last tranche is actually the billion dollars in debt. So we take equity and then licensing fees first. But we have in total that 5.8, plus the roughly 6.7. So what we've guided to publicly and communicate to shareholders and to analysts, that's not only enough capital to launch R2 in normal, but it's enough capital to launch our second R2 plant in Georgia and take us through positive free cash flow.
- [31:38]
Alex
Okay, a couple questions about electrification for you and the environment. Also in that interview, you mentioned that the grid today is 60% fossil fuel, 40% renewable and nuclear. And the move away from fossil fuels towards this grid that is getting more sustainable will end up leaving us with a better state in terms of our quest to make sure that this environment doesn't crumble on itself. So I'm just kind of curious, like, do you think that the timeline that we're on is sufficient to be able to get the gains from electrification that we are trying to get? Because every time I read a story about the climate, it's always like, we are at the point of no return. We're approaching the point of no return. We are beyond the point of no return. Antonio Gutierrez from the United nations in 2022 said the climate crisis had passed the point of no return. So how do you think about this? Because if we're beyond the point of no return, why am I going to end up buying an EV versus an internal internal combustion engine, because does it matter?
- [32:48]
RJ Scaringe
So there's a few things I want to say here. This is. There's a philosophical point which is we as a society have built a certain style of living, and we built this massive base of technology and the whole fabric of an industrial ecosystem really, over the last 150 years. And we built it around fossil fuels. And it's allowed for you and I to do what we're doing here, to be in different places, in different locations, having a conversation among many other things it allows us to do. But it's come off the back of fossil fuels. And so while our parents, grandparents, and great grandparents are the generations that built this world, our generation, and maybe the next generation have the responsibility of completely rebuilding it in a way that doesn't require or run on fossil fuels. And we can debate how much supply of fossil fuels we have left, but it's indisputable that it's a finite resource, meaning there's not an infinitely deep well of oil or infinitely deep mine of coal. It is something that you could argue is 100 years, maybe it's 125 years. But we will absolutely, without changes to our behaviors, run out of fossil fuels. And so we have to make the change. Like, if I want my kids, kids, kids to live a life like we live, it's not a choice. And again, it's like truly fully 100% indisputable that we have to move off of it. So the philosophical view that I carry is moving off of it later and saying, oh, we'll let the next generation deal with this, or just we'll run out of it and we'll run into a brick wall and then the lights will go off. That mentality is just loading up the risk on the planet. We're taking hundreds and hundreds of millions of years of atmospheric evolution where we saw all this carbon sequestered out of the atmosphere, put into plants. Those plants got buried in the crust of the earth. Those plants, over hundreds of millions of years, converted to oil and coal. We're reversing it really quickly. Like the difference in timescales is orders of magnitude. And so there's no practical reason that I can identify at all to delay the transition. So to make the point further, the future state is going to be renewable energy. It's going to be electric. Everything will be. There's not going to be little engines running and things. And so from an economic point of view, we want to be on that future of state. Technology not doing that would be saying in 1910, let's invest in horse production capacity. So that's the economic argument is let's be part of the future global economy. The climate argument is there's lots of models that look at when's the point of no return? Even past the point of no return, more carbon is still worse. So we're already experiencing like real time, even today, a worse world in terms of climate patterns, weather patterns than what, like what I grew up with as a kid. And so we need to curtail that as much as we can. So I think it's urgent that we do everything we can to create new products, new technologies across everything. It's not like Rivian is one slice of what needs to be. Thousands of companies like Rivian that are doing products in their respective spaces. Heat pumps for buildings, you know, micro mobility for cities, you know, electric mass transit, like, these are all big things that need to all get built. And so certainly you could say, well, that's not my problem. Like, let's ship the problem to the next generation.
- [36:21]
Alex
No, I wouldn't say that.
- [36:22]
RJ Scaringe
But it's just like. But I think, I think we have a responsibility to our kids and our kids, Kids, kids to do something right now.
- [36:28]
Alex
So a lot is demanding more juice from the grid right now. You have EVs that are rising. You have AI which like, seems like it needs another nuclear plant every other day. And you have Bitcoin. I don't know how big that is, but I imagine it's big. Is our grid in good enough shape to sustain all these at once?
- [36:47]
RJ Scaringe
Absolutely not. No, no. I mean, that's the thing that makes this such a unique moment in time. We have one and a half billion cars on the planet that need to be replaced. We have thousands of coal power plants that have to be turned off. We have thousands of natural gas power plants that have to be turned off and replaced. We have a grid that's archaic and doesn't have any of the supply demand mapping that we should be thinking about. Doesn't have, you know, effective ways from a policy point of view, managing things like net metering. We have buildings that are leaking air and aren't sealed properly for thermal. I mean, there's just like opportunity after opportunity after opportunity. And so you could look at it and say, oh my goodness, this is terrible. What are we going to do? Or you could look at it in our view and it's like, holy cow, there are so many business opportunities to go build this future world. And you said, AI And I'm glad you brought it up. I mean, imagine the scale of this transition. This is not a once in a generation transition. This is a once in a. There's only one time that the world went through the fossil fuel revolution. So like the late 1800s is only going to happen once. And the turn off of fossil fuels is only going to happen once. And the turn on of renewable energy and carbon free energy is only going to happen once. That's a once in a planet activity. And we also are only going to have one time where artificial intelligence is birthed into the world. And the fact that those two things by coincidence are happening at the same time, and then further, that we happen to be alive now at this moment, this is going to be a very interesting chapter in a history book 2,000 years from now, which is the end of the fossil fuel era, the birth of artificial intelligence, the beginning of renewable, sustainable energy. It's like, wow, how is this all, how are we so lucky as people today to be born and alive at this hypercritical moment? So yeah, none of the, none like the world is not set up right. We have like the whole grid has to be redesigned, the policy around it has to be redesigned, the battery structures around it have to be. There's a lot to build.
- [38:51]
Alex
I mean, knowing the way that we move as a species, it seems like we might be screwed. Too negative.
- [38:58]
RJ Scaringe
No, I think that I was out at dinner last night with a bunch of entrepreneurs that are building different types of businesses and essentially these two spaces, either energy or AI, and the level of excitement and enthusiasm to go create this future state that you see in other CEOs, other founders, but you see it across the business is inspiring. Whenever I'm dealing with a really hard problem within Rivian, one of the things I do that's really effective is I literally just go wander over into the engineering area and the inspiration of seeing it like really smart people, super capable people that are busting their tail to try to solve hard problems within Rivian, it's inspiring. And there's thousands and thousands of people like this across the world, across many different companies. And so I think that's, you know, that of course, is what's going to get us as a species through this really challenging moment. So I have a lot of confidence in that. But it's not easy. It's. Right.
- [40:02]
Alex
Is it going to, is it going to take an old technology? And by that I mean, what do you think about nuclear? Is that one of the solutions here?
- [40:08]
RJ Scaringe
Yeah, well, you referenced something I said at the Wall Street Journal discussion or New York Times discussion. Yeah, I mean today our grid is about 20, just under 20% of it is nuclear power. The other for non carbon. The other roughly 20 plus percent is, is renewable. So of the 40, it's half and half. And it's going to be hard to build renewable energy as quickly as we need it. So I do think nuclear is going to play a role. And you joked about it, but with the growth of AI and the energy needs for that, there's going to be, I think, reinvestment in that technology.
- [40:47]
Alex
Oh, for sure. Yeah. I think that's an emerging story that we're going to be watching here and I'm curious to see how it plays out. Okay. I definitely still want to talk about China and if we have time for it, hybrids. So why don't we take a break and talk about that right after this. I'm Tomer Cohen, LinkedIn's chief product officer. If you're just as curious as I am about the way things are built, the insight behind what it takes to create world renowned products, then join me for my new podcast, Building One. Together we'll get to learn from leaders around the world, people with diverse backgrounds across multiple industries. Each will share insights into their craft. So listen and follow my new show Building One on Apple Podcast or wherever you get your podcasts and check out the conversation on LinkedIn. It's going to be great. And we're back here on big Technology Podcast with Rivian CEO RJ Scringe. Rj, explain to me how China has been able to develop $10,000 electric vehicles that apparently run pretty well. Is it the fact that they are, that there are phone companies that have been working on batteries that are doing it? Is it government subsidies? What exactly is enabling them to do that? Is it low wage labor? And is there a way that that can be replicated elsewhere around the globe?
- [42:07]
RJ Scaringe
Yeah. Yeah. So I've been able to drive and some of these EVS you're referring to in the 10,000 RVs, I've been in them. And it's, and it's exciting to see the.
- [42:21]
Alex
Wait, can I ask, how do you arrange those rides? Like, do you go to the companies and be like, hey, you know, I'm the CEO of Rivian, I'd like to.
- [42:28]
RJ Scaringe
Well, it depends. Yeah, in a lot of cases that's the case. You know, that's what's happening. The other thing is, of course products end up everywhere. So like there's lots of Rivians that are in China, because companies will buy them, to benchmark them here in the U.S. you know, a lot of the cars built in China end up here. And there's third parties that buy these cars and then go to. No, well, they go to companies like us and say, do you want to try it for a day? So there's a whole industry of people that.
- [42:56]
Alex
That's a fascinating business.
- [42:57]
RJ Scaringe
Yeah. Yeah.
- [42:59]
Alex
Okay, so you've written them. What do you think?
- [43:03]
RJ Scaringe
Well, I think first and foremost it's, it's important that they exist. It's important that we have choices across lots of products, price points. And to achieve that, you need a few things. You need really heavy cost focus at the design level. So the vehicles are engineered for cost. You need to have supply chains that are really robust and efficient. You of course benefit in the case of China from a much lower cost labor rate than what we have in the Western world, certainly in the United States. And then in the case of China, you do have just, you have this in the US but to a more, you know, to a more elevated level, you have incentives that are happening at the federal or the local government level. And so the combination of all those things have allowed for some really attractively priced EVs to be made and produced and sold in China. And I think this is great. I think long, long term, some of the incentive structures that we see, just like we've talked about at the start of this call, you know, are not going to be permanent. But the efficiencies of design and some of the efficiencies that an EV affords in terms of architectural layout will start to play out as you get to lower cost batteries, you know, other than the battery, an electric vehicle is actually a lot cheaper to build, it's cheaper to maintain. So raw material cost, battery cell costs, these are really important things.
- [44:28]
Alex
You've taken apart some of these cars. What have you found inside them?
- [44:31]
RJ Scaringe
When you look inside, there's, I think there's nothing magic. There's not like, aha, there's this flux capacitor. You know, there's, there's a, you could see a cost focus of part consolidation, fastener elimination, part or feature elimination. So you know, the vehicles will reduce the number of features in the vehicle Range is a big one. So adjusting the range down to be not a 3,400 mile range vehicle, but maybe 150 or 200 mile range vehicle. Motor sizes are smaller, so it's less performance. So you know, there's just a whole series of decisions that are really, you know, they're not, it's not like a black art. It's a well understood, very trackable, very measurable set of decisions that are made.
- [45:18]
Alex
On the battery side, there have been mobile companies that have been able to develop EVs in China. What do you think has enabled them to do that? Where we have failed to do that in the U.S. think about Apple. They had an autonomous driving program that didn't go anywhere. Maybe it was electric, maybe not. But yeah, we haven't really had that happen in the US the interesting thing.
- [45:40]
RJ Scaringe
About the development of a vehicle, especially in a modern sense, is there's batteries, there's motors. Those are, those are key elements of the architecture. They drive a lot of the cost. But in terms of customer differentiation, a lot of the differentiation sits with the design of the computers in the vehicle, the design of the software stack in the vehicle. And so companies that have a lot of experience in designing computers or designing software do have a valuable and differentiated skill set that can be applied to vehicle design. The benefit of a clean sheet company like Rivian is Rivian has more software engineers than any other type of engineer. We have more software engineers than mechanical engineers. And so the reality is the amount of tech that's going into electronics, compute platforms and software is disproportionately high relative to what it was, let's say 10 years ago or 15 years ago. It's just a step change and that's only going to become more the case as time goes on.
- [46:43]
Alex
I could ask you one more question about the battery. It seems like, or one of the things that people talk about when they talk about EVs is that I think it's lithium within the batteries that maybe one day it's going to run out or it's really tough to get or sourcing it, you know, ends up, if you're going to buy lithium, it's going to be, you might end up running into like some human rights issues. What do you think about that?
- [47:04]
RJ Scaringe
Well, first, a significant misconception in piece of misinformation in the world is that batteries like burn through and use up the materials that are in them. So like lithium gets consumed. That's not the case. So there's an opportunity for once you get batteries in the system, you're going to continually reuse the lithium. So it's really a closed loop system and the value of the batteries is too high to even imagine a world in which, you know, they're just like thrown away. So there's no world in which you like have landfills full of lithium ion batteries. It'd be like throwing away boxes of gold necklaces. So that's the first point is it will absolutely end up with a closed loop, really high rate of recycling. An example of this, which is worth calling out is a lead acid battery where lead is not very valuable, but it's more valuable than, let's say, plastic. But the recycling rate of lead acid batteries, around 99%. So I would say unequivocally, the recycling rate and lithium ion batteries will be very near 100%. 99.9%, maybe 99.99%. So with that said, in the short term, we have to extract enough lithium from the earth to support this. What eventually becomes closed loop cycle for batteries. And there's a lot of places that have lithium. Most of them aren't in the United States. So it does require trade with foreign entities. And fortunately with lithium, there's lots of places to get it where there's not questions around labor practices or how it's being mined. I think there's some other materials that are in the battery that are more challenging. The one that I would point to that it's the most problematic is cobalt. And there's not a lot of places to get cobalt. It is a more challenging supply chain from a labor practices point of view. But from a technology point of view, most companies, certainly Rivian included, are working to engineer cobalt out of the battery. So I don't think cobalt will be a long term part of battery chemistry strategy. And so we'll end up using materials that are more easily accessible, or I should say more broadly accessible. And just like any other space, this is a space that's rapidly matured. So lithium. The demand for lithium has exploded over the last two and a half decades with the move to lithium ion batteries and everything from our consumer electronics to our cars, that's becoming a much more robust marketplace. It doesn't quite have a commodities market in the sense that steel or aluminum do, but it'll get there. And I think you'll start to see this in some of the other materials as well.
- [49:41]
Alex
I've been debating our whole conversation whether I should ask you a question about plug in hybrids and ask it. I've been saying, well, it's boring and. But I'm going to close on it because I do think that the momentum that plug in hybrids have had in the United States is quite interesting and it's worth noting and getting your thoughts on. So this is from the Journal. The plug in hybrid car starts to win over Buyers and basically the way these work is they run on battery for 20 to 40 miles and they revert to a gas engine. And the Journal story says the number of plug in hybrid models on sale in the US has nearly doubled since, since 2019 to 47. Why do you think that these cars are doing so well and would you ever consider building one?
- [50:30]
RJ Scaringe
I think that it is a very short term perspective. So Rivian would never consider building a plug in hybrid. I think it's a pure throwaway technology.
- [50:43]
Alex
Just for listeners. The way that RJ said that, you should have seen the facial expressions. This is a very clear statement here. No plug in hybrids.
- [50:52]
RJ Scaringe
Well, I think it's a distracting intermediate technology that it's unfortunate because I think, yes, I can understand for a consumer it's maybe a smaller bridge, but for a manufacturer it's going to cause them to spend a lot of time and effort on something that has a terminal end state. You know, and I draw the analogy. If you remember when we went from CD players to play music to playing music off of a, you know, off of a solid state drive, in between that there were a bunch of things like there were these little mini disc players, they could hold like 70 songs. And all the companies that built those little things as minidisc players are long gone. But they're not, they're really hard problems to solve. Like to build a MP3 player that could play off a little, you know, little mini hard drive. A lot of useless technology was developed.
- [51:46]
Alex
You held one of those, you're like, ah, this is the future, I don't need anything else. And then the iPhone came out.
- [51:51]
RJ Scaringe
Plug in hybrids is. Plug in hybrids are sort of that. It's like, it's a highly distracting, technically hard to execute product. Of course it benefits companies who have a lot of experience in engines because they can take their engine expertise and emissions expertise and they can be more profitable in the short term. But I do really deeply hope that manufacturers across the globe invest enough resources in electrification so they're not caught off sides when 2030, 2032 rolls around and they're not as capable as they need to be in developing those vehicles.
- [52:27]
Alex
Okay, well rj, I'm looking forward to getting behind the wheel of your latest generation a vehicle and excited to try out the R2 and the R3 when they come out and maybe see what that Porsche is all about when it has Rivian within it. That's the one I'm looking forward to the most. Great to see you. Great to speak to you as always. Thanks for coming on the show.
- [52:45]
RJ Scaringe
Great. Good to see you as well. Thanks again.
- [52:47]
Alex
All right, everybody, thank you for listening. You can tune in to my test drive of the latest Rivian vehicles on my YouTube channel. Also, if you're listening on or watching on Spotify. Yes, we do video there now as well. So glad to have you here, no matter which platform you're listening to the show on or watching. And on Friday, we'll be back to break down the week's news. Thanks again. And we'll see you next time on BIG Technology Podcast.