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Everything Electric Podcast
RJ Scaringe on Rivian’s Biggest Test: R2, Supply Chains & China
00:57:56
Imogen sits down with RJ Scaringe, founder and CEO of Rivian, for an in-depth conversation about the company’s journey so far. From its ambitious beginnings to becoming a major player in the EV space. RJ shares Rivian’s founding story, the...
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RJ Scaringe
Foreign.
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Podcast Host
Hello and welcome to another episode of the Everything Electric podcast. And if you are watching this rather than listening to it, you may notice that today is a different day from the interview with our guest. And that is because I spoke to our guest quite late at night and got so excited I totally forgot about the intro and outro. But our guest today is of course RJ Scaringe, who is the founder and CEO of Rivian. And and in this conversation he shared details of how the Rivian came to be the founding story, the supply chain risks that they're currently facing, what's happening in China and what to expect next from the Rivian lineup. It is such a wonderful conversation and I cannot wait to share it with you. But first, a very quick advert break.
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RJ Scaringe
Our three free YouTube channels on EVs and cleantech are funded by our fun packed test drivetastic events in Farnborough, London, the Southwest, the North, Melbourne and Sydney. And next up, Everything Electric Farnborough and new for UK viewers. You can now buy a battery, EV and much more at EverythingElectric store. Now back to the episode.
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Podcast Host
RJ, thank you so much for giving up an hour of your morning. There are so many people who are going to be listening to this podcast who know precisely who you are and what you do. But for those who might have been living under a rock, we what is your dinner party response when people say, oh, hello, who are you and what do you do?
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RJ Scaringe
Well, it's been for a while now I would respond by saying I started Rivian and up until a few years ago, then it would follow with what is Rivian? And I'd have to describe what Rivian is and what it takes to start a car company. But I started Rivian in 2009 and it's been quite the journey. You know, starting a car company from scratch, you know, is, has a whole host of challenges, not the least of which is you need a lot of capital, you need a very large team, you need, you know, large manufacturing footprint, hundreds of supplier partners, proven technology, a brand people care about. And so you have all these really hard to build things and you need them all at the same time. In the beginning you have none of them. And so it's been, it's been quite the journey for me where, you know, we're now getting ready to launch our, our next generation of product, which we call R2, and it's a smaller form factor, much lower price vehicle than our flagship product, R1, you know, and I couldn't, I couldn't be more excited about it. It's. It takes all the learnings of what we've. We've done to date and puts it into a package where the price points, you know, meaningfully lower the cost is less than half of what it takes us to build an R1. You know, I've been driving. I did school drop off the other day with an R2 and it was like heaven. The kids were so excited. So, yeah, I think anyone inside the business that's working on R2 or exposed to it just can't wait for people to experience it.
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Podcast Host
And I think I'm right in saying we should be expecting that early ish next year.
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RJ Scaringe
Yeah, early ish. Early. As early as possible next year.
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Podcast Host
And just also to bring everyone up to speed, the current products that you have on the road are the R1T and the R1S. And the R2 that is coming is, as you say, it's around $30,000 less expensive than the R1T and R1S.
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RJ Scaringe
Yeah. So we have R1T, R1S. Think of those as our flagship products. So they're very high performance, they're premium products, very aspirational products. But the average selling price of Those is around $90,000. 90,000. R2 starts at $45,000. And, you know, and it very much is a rivian, meaning the way we've done product features and the attributes and all the trade offs across performance versus, let's say, efficiency and content, it feels very Rivian, like, but it's a smaller package and, you know, offers still very, very, very strong performance.
- [04:02]
Podcast Host
We were super lucky to have an R1T during some filming in Canada about a year ago, and we drove from Vancouver all the way up to Hope. And Hope is a bizarre place because it's also where quite a lot of filming has. What am I trying to say? Rambo. Some of the Rambo films were filmed in Hope.
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RJ Scaringe
Oh, really?
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Podcast Host
Yeah. And you go to this sensational landscape to get there, then you end up in the middle of nowhere and just having that R1T. It was extraordinary. It was really extraordinary.
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RJ Scaringe
I think, especially when you explore the outdoors. Traditionally, exploring the outdoors in a vehicle is done in things that are loud and noisy and not particularly efficient. And so being able to do it with the serenity of being in a vehicle that's completely silent is really special.
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Podcast Host
And especially one that I think embodies a version of the future. But if that version of the future was imagined by a Pixar character without being babyish, I know that's probably slightly A fluffy way of describing it, but futuristic. Cool but friendly.
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RJ Scaringe
Friendly, yeah. It's funny you say that. In designing the vehicles, we wanted them to feel both desirable but still very friendly. You know, in a lot of automotive design, we've seen things look quite upset or angry, especially as you look at higher performance vehicles. You know, when you take our R1T with our quad motor, it's faster, accelerating to 60 mph and then to 100 mph than almost any hypercar. And of course it's a pickup truck or an SUV in the case of the R1s. And so there's a friendliness to the fact that it's such extraordinary performance on road. Of course, off road, it's, you know, hypercars, Dunkoff road, but it's also extraordinary performance off road. So it's just a very unique combination of capabilities wrapped in a, in a skin that feels very approachable, very lovable.
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Podcast Host
Now, one of the things I want to ask you is that you began Rivian In I think, 2009, which is interesting for a number of reasons. Firstly, that was quite a different time. We were sort of pretty BW Dieselgate scandal. EVs were still very niche. Elon Musk was still perhaps not divisive at that particular point in time. And also, you hadn't worked in an OEM before. You had a lot of experience with cars from everything that I've listened to and read, but hadn't worked in an oem. So I wonder, at what point did it dawn on you the scale of the challenge?
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RJ Scaringe
Yeah, I mean, I, as you said, I started the company, I was right out of grad school and I'd known I wanted to start Rivian or what would eventually become Rivian since I was a kid. So since I was, I don't know, maybe 10 years old, I knew I wanted to start a car company. And when you're a kid, you don't really think about all the mechanics of what that entails and the scale of it. But I ended up going to school for automotive. I did my PhD work, was working with a collection of different large scale manufacturers, which gave me some exposure. But as you rightly said, I made the decision to not go work at a car company, but rather start the business right away. And I actually thought earlier on, well before I started the company, I actually thought I'd go work somewhere first. And as I was doing my, my graduate work, I realized I didn't want to wait. I didn't want to like lose 5 years or 10 years working somewhere I wanted to just start right away. And so, yeah, I started the company. And for me, like building a business, there was a lot of learnings that had to happen. There was, of course, as you said, just the scale of something like this. And needing to be in some ways intellectually honest with yourself that if you really want to start a car company, and in particular if you want to start one and develop technology, meaning not rely on suppliers or third parties, but actually build innovative technology yourself, you need to spend. You need to be positioned to be able to spend many billions of dollars, and you have to spend billions of dollars before you generate your first dollar of revenue. And even if you had billions of dollars at the very start, it would still take you several years to get to the first product. So it's just a very unique type of business where most like the venture capital community and the startup community has really been built around this idea of you. You build a very hacked version of your product, you know, a minimum viable product, as it's often called, demonstrate there's market interest, make it better, improve it, and you raise, let's say go from a series A financing to a series B series C, and you sort of grow your financing pool and then improve the product. Whereas with the vehicle, you've no chance to do like a minimum viable product. To say, like, I'm going to ship you like the 50% solution and tell me what you think, and then I'm going to improve it. You have to go all the way. And it means building a plant, building out a very complex supply chain, you know, building a team that has thousands of engineers in it. And so it was, I think I did realize how hard that would. I realized the scale of that. I didn't realize how hard that would be in particular, like pulling together investment and resources. And I look back down with a smile. But imagine like the early investor meetings, I would show up in a room, I'd be describing the business, and I'd say, I'm starting a car company. And immediately there's like, really? And then it's like, all right, well, tell us about your technology. And we're like, well, I don't have any yet. That's why I'm here, to try to get some money so I can develop technology. All right, well, tell us about the team. Well, so far it's me. All right, well, show us what it looks like. Well, I don't know about that yet either because we haven't figured that out. So you quickly, in these investor meetings, you almost talk yourself out, you're like, wow, boy, there is a lot to do. We have none of the money, none of the team, none of the tech, none of the suppliers, none of the manufacturing footprint. So it's, you know, in the beginning, it's a really hard business to start.
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Podcast Host
Since 2009, when you first founded the business, we've actually seen a number of EV startups to various different degrees of success. Some are still here, obviously, the likes of yourselves, lucid Tesla, et cetera. And some have maybe not been so successful, the likes of Fisker, Canoe Arrival, for which I am an alumni. What do you think it is about Rivian that has made it uniquely successful and has continued to grow despite all of the headwinds that have obviously emerged between 2009 and now?
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RJ Scaringe
Well, in starting a business like this, there's a. A few things I think are really important that perhaps the most important is what you intend to build or what you're ultimately going to build, needs to have really strong product market fit. And I look back when I started the company in 2009, what we thought the product was going to be, what I thought the brand positioning might be, had almost by necessity, had to evolve quite a bit. And I think this is one of the great strengths of entrepreneurs and new businesses is the ability to iterate through lots of concepts until you really feel confident in what the ultimate strategy and product plan is. And so we went through a number of iterations, some very big, where we had, like, large, you know, pivots or shifts in what we were thinking we were going to do to arrive on a hypothesis essentially of what we thought would be a great brand opportunity and product opportunity, which now subsequently have become what we know as Rivian. But one of the big things we were focused on was making sure what we were building would occupy an entirely new space, would illuminate a new perspective on electric vehicles, and would create interest in ways that others hadn't. Meaning, I think often in starting a business, if you look for who's been successful elsewhere and you try to replicate that, you end up building something that looks like somebody else's business. And so we were very cognizant of that. And one of the things that's helped Rivian a lot, I believe, is we were so clear on the brand we were trying to create and so clear on the mission of that brand that it helped inform lots of product decisions. And it helped informed. It helped inform how we went about building our technology roadmap and our overall technology platforms. And really it came down to this idea. And it's funny I say it today, but it was like 10 years ago, it was on a chart or dreaming about it. And we wanted to build a brand that both inspired but importantly also enabled people to go do the kinds of things you want to take photographs of. Which is sort of a fancy way of saying we wanted to enable people to have active, adventurous lives. And when we say active, adventurous lives, that could be many things. That could be taking your kids to the beach, it could be going hiking with friends, it could be mountain biking, it could be skiing. But effectively, products that invited your gear, your pets, your kids, your friends, your family members into them, and then out into the wild. And the wild is, you know, when I say the wild, I mean, you know, the world. And to the urban wild, the non urban wild, like just out there. And so we made a whole host of decisions around what those products wanted to be. And now it's very clear. But at the time it was maybe not as obvious. We said, well, to do that, we want to build a product that underpins a flagship SUV and a flagship truck, which are the two vehicle archetypes, if you will, that most embody that type of active lifestyle and use that as the handshake with the world to then build a whole host of lower price products, which we're about to launch, the first of which with R2 here shortly. So I think that was one. One big element is we were really clear on what we were doing and wanted to make sure we were building something that didn't yet exist in the world. And sitting here today, it seems more. It's easy to forget, but in early 2010s, like, call it 2011, 2012, when I said the idea of electric and off road, people would say, like, that just can't happen. What if it hits a big bump? Or what if the vehicle goes through water? Like, there are lots of incorrect assumptions around limitations of an electric vehicle to operate in harsh environments or environments that had any degree of difficulty in terms of terrain. You know, as I said, water. So. So like, just like big misconceptions. We had to work past that was one. The other thing that I do think is really important is to start a car company. You have to. I think the people that start car companies have some degree of hyper optimism because the likelihood of success, especially if you start without money, without a team, without tech, you know, without. Without manufacturing, without suppliers, is just like so low. So. So you need to be very, very optimistic, but you also have to simultaneously be very realistic. And those are two things that don't often go together. And so I think we have a very high degree of optimism, but we're still very realistic. Meaning we weren't kidding ourselves by saying, oh, you can do this for $500 million, you need to raise a lot more money than that. We weren't kidding ourselves in saying we could develop and launch a whole new product in a year. We knew the product development cycles and test cycles, especially starting from scratch with a team of one, myself would take time. So there was a degree of realism that was married with this really high degree of optimism that I think helped avoid a lot of the mistakes we've seen others make where they, like, wildly underestimate the task. I now meet with people and they'll say, hey, I'm starting a car company. I said, well, what's your plan? They said, what was my plan? I think I can do it for about $10 million. And I think, well, sure, good luck. But you clearly don't understand the scale of the problem or scale of the task. That's about half the tooling cost on a front fascia. So you can have a half of a fascia, but you won't have the rest of the car. And so I think that realism that we had was really helpful.
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Podcast Host
It's so interesting because I think the automotive industry, and one of the reasons that I love it so much personally, is that you have these creations that are technically extremely impressive. You have these incredibly complex supply chains, a huge amount of people that need to be involved in creating these things. But also for the end consumer, they're emotional purchases. So you're blurring these, this technical world and this sort of brand value world, and also something that needs to be incredibly safe as well. And as such, it just, I think working in the automotive industry and especially starting an automotive business, requires a huge amount of humility. And without it, it's going to cost you either in time or poorly managed expectations.
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RJ Scaringe
Yeah, yeah. Humility is an important. Yeah, it's hard. It's very, very hard. Yeah, yeah. I often say, like when you see a vehicle, like you get into a car, you sit in it and you're sitting in it may not feel like it, and that's maybe sometimes the intent, but you're actually sitting in many tens of millions of decisions. It's like everywhere you look there's decisions and behind those decisions there's more decisions. So you look at the cross car beam that sits under the ip, there's hundreds of decisions that went into every structural Element of that, the radii of the structure, the thickness, the material selection, the manufacturing process, supplier selection. I mean, there's just so many decisions and there's. And because of the scale of content and the scale of decisions, it's not possible for it to be done by one person. Meaning a lot of products you can design with a very small team, like five people can do the whole thing, you know, or if you're, you know, some products, one person can do the whole thing. But in a car, unless you're willing to, for the development process to take, you know, 20 or 30,000 years, like you have to put thousands of people in parallel working towards one goal.
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Podcast Host
Yeah.
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RJ Scaringe
And the best products are the one where it looks like one brain did it, despite the fact that you maybe had three or four thousand brains working in parallel. And you know, that's just, it's like, it's a big exercise in like coordination of decisioning.
- [18:35]
Podcast Host
So I want to Fast forward to 10 today because it's a very different world compared to 2009. Rivian and like any company, and especially any automotive company, has faced sort of unprecedented challenges in recent years. Not least the COVID pandemic and the impact of supply chains and how people could operate during that time. There's been probably a more mainstream wake up call to the extent of the climate crisis, followed by a swift politicization of addressing that climate crisis as well. And all of that is culminating perhaps in a very difficult trade environment, perhaps spearheaded by a certain Donald Trump. And as much as it would be brilliant if the automotive industry didn't need to be politicized and EVs in particular didn't need to be politicized for whatever reason they are. And I've heard you mention on previous podcasts that your role as CEO is to do the most important job at the time and that the time demands right now, it feels like perhaps that job is being a master in trade policies and supply chains and politics. And I wonder if that's what it feels like.
- [19:48]
RJ Scaringe
I mean, it's certainly a big part of the job, I think, in trade. Well, let's talk supply chain first. So supply. The supply chain for something like a vehicle is orders of magnitude more complex than almost anything else in the world. So take for example, our R1. We have several hundred suppliers directly to us, but each of those suppliers has, depending on the system, let's take, I think, a good one to visualize as a headlight. We have one supplier that provides us a headlight. The headlight's built in the United States. That supplier, in turn has about 10 suppliers. We call those the tier 2s. Those tier 2s, in turn each have about 10 suppliers. And so you just look at this ballooning of the number of companies that are involved in making our headlight is well in excess of 50 suppliers, 50 different companies. And a number of those operate in the United States. But of course, a number of those also operate outside the United States. And we don't even have full visibility into all of them. Like the suppliers to our tier twos. You know, we wouldn't, under normal circumstances, even meet them or know who they are. You know, that may be a coating supplier, it may be a raw material supplier, could be a tooling supplier for making the parts in the headlight. And so that's a just. We're in a different world now where we have to be very cognizant of what are our tier ones, Twos, threes, sometimes four, fives look like, where are they located, and what are the implications of trade. We're fortunate as a company, particularly that we operate in the United States, that we have a very vertically integrated supply chain for a lot of our content. So we make a lot of our own things, or we act as the tier one or even the tier one or the tier two. And we're very US Centric. But that doesn't mean we don't have components that are coming from outside the United States. Components or systems or raw materials. So, yeah, so we've certainly spent a lot of time now navigating just an evolving trade environment. What I'd say is clearly the administration. I think this is actually something where you see alignment on both the left and the right is there's a push for more domestic manufacturing in the United States. I think this is a phenomenon we're seeing in many countries across the world where they're especially large countries or large economies where they're pushing to protect or bolster local production or local industry. And so we understand that sentiment, and we're designing our future supply chains, recognizing some of those new dynamics that are different than what we saw for the past 30, 40 years, where we started to see supply chains concentrate into areas where you either had advantaged labor cost or advantaged material cost. A lot of that global trade shift that we saw from, let's say, the 1960s through very recently is flipping back to what it was a very long time ago.
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Podcast Host
But it also seems that from your perspective, you have a manufacturing operation in Normal, Illinois. I believe you're also building one in Georgia for the R2. So you are manufacturing in the US and of course we can agree that it would be great to onshore some of those activities to bolster that domestic supply chain. But right now, due to the nature of the automotive supply chain, that's not completely possible. And Perhaps automotive companies, OEMs in particular are being punished for something that's kind of not really their fault. So I wonder, you know, if you could whisper in the administration's ear, say, look, come on, help us out here. These are the things that would really just make our life a little bit easier. What would you say?
- [23:39]
RJ Scaringe
I mean, given the complexity of supply chain, I think there's two categories of, of supplier decisions. So there's, I'd say there's three. There's, there's components and systems that are built in the United States for which that's easy in our case. So there's, you know, that sort of already solved. And so that tends to be the things that are physically larger, which have, you know, high logistics costs to move them large distances. Then you have a category of items that are relatively easy to ship and have high labor costs associated with them. Where in the case of the United States, we've seen over the last several decades a lot of that content move to markets where there was the availability of labor and I should say the willingness of a workforce, but also at much lower labor rates. And so Mexico has become a huge part of the US Auto industry. And we've had a North American Free Trade Agreement in place for a long time that's helped build this very large supply chain in Mexico where the more labor intensive portions of building content that goes into vehicles, things like wiring harnesses, have been. It's really transitioned to a Mexican supply chain. So that's one. But those are the types of things that we could make the decision to move some of that back to the United States. There's capital investment requirements to do that, but there's not structural limitations to it. There's not, it's just a capital allocation decision. Do we want to produce it in, in the US With a higher labor cost and make that capital investment to do so? The third category, which is actually quite a bit different and in some ways far more complex, are where you have materials that simply are not available in the United States. And so I'll take just a couple of examples. Nickel. Nickel goes into the batteries in our vehicles. 90% of the world's nickel supply, actually about 92% comes out of Indonesia. And so even if we really wanted to there's not an ability for us to like press a button and have a nickel supply chain. You know, nickel mines pop up in the United States. Putting aside the fact that there will be very, very few communities in the United States that want to have a nickel mine in their backyard and or their people that want to necessarily work in that line of business. And so we have like those types of limitations. And then there's even more extreme examples where I use nickel is a 92% is coming out of Indonesia. Take heavier earth metals. This is perhaps the most complex. Essentially all of the world's heavier earth metals are processed today in China. So something like it's all those things that when you learn the periodic table, it's a lot of those heavy metals that you don't think of often. But something like dysprosium, it is impossible today to source it from anywhere other than China. And can we change that in the fullness of time? Yes, but that will take many years. This is like not, this isn't a 12 month thing. This is a multi year transition. And so I think we have the big question, not just us, but many businesses that require some of these more difficult to source things like heavier earth metals or areas where you just because of the unique geology of the crust of the earth, where you have more concentrated forms of things like nickel. In certain countries where trade becomes really important. If you look at historically, the United States actually has strong reserves of petroleum, we have strong reserves of coal. So we are fortunate in the fossil fuel era of having a lot of those reserves. But as you think about future technologies, we actually don't have the same geological advantages that we had in the fossil fuel era. So it by necessity requires trade and trade often with countries that we haven't historically traded as much with. And so saying all that, I think the administration really does understand that they're working. We're spending a lot of time on these types of topics looking at where the most concentrated reserves of let's say metals, heavier earth metals for processing, what that looks like, where the countries we need to do business with. And you know, thinking out four, five, six years and contemplating what that future state supply chain is going to look like. But maybe a funny way to answer the question is, you know, when you start a car company, you don't think to yourself I'm going to become an expert in mining or understanding the, you know, the geology of the Earth's crust. But suddenly because of the nature of our business, like we have a whole team that's like that really understands the mining industry, really understands the material processing industry. It's a team I spend a lot of time with. And suddenly it puts you right in smack in the middle of a lot of geopolitical big questions.
- [28:49]
Podcast Host
And those big geopolitical big questions are not unique just to Rivian. Every OEM in the US and indeed across the world, is experiencing the same sorts of challenges. So do you have a WhatsApp group or a group chat with various other automotive OEM CEOs where you can just sort of rant about some of this stuff that's making life a little bit tricky?
- [29:11]
RJ Scaringe
Yeah, this is a fun question, because traditional tech. So when you think of tech as we might look at it through the lens of software businesses, you often have one or two very large dominant players in a segment or in a space within a market. And as a result, you don't have communities of leaders around a segment in the same way that you do in automotive, where by definition, the automotive industry is so large and the preferences of consumers are diverse such that to support, let's say, 90 to 100 million vehicles being produced and sold globally, you actually need multiple brands, multiple perspectives. Not everyone wants to drive exactly the same thing in exactly the same color from exactly the same company. And so you end up with a large spectrum of brands and companies that peacefully coexist, meaning, of course, they're competing and there's. Everyone's looking at how they're growing relative to others. But I don't think anyone is of the view that everyone has to lose for someone to win. In fact, many companies can win. And so you end up with. In my case, I end up with lots of very strong, very positive relationships with the leaders of other companies where you can certainly you contemplate how you know how to look at trade or how we think about some of the geopolitical challenges that are happening across the planet and, you know, and sort of root for each other, recognizing that a rising tide helps all ships. And I say this all the time. I think the challenge we have for electrification in the United States is not one of too much choice. It's actually the opposite. We have very few great choices of electric vehicles. And so a lot of that mindset that we have as a company was what helped build our partnership that we have with Volkswagen Group, where we put together a very large software licensing arrangement with them and ultimately joint venture to help them deploy some of the technology. We've developed around really advanced zonal architectures and new ways of looking at electronics and Software in a vehicle being because we want to help bring more super compelling, super exciting electric vehicles to market.
- [31:31]
Podcast Host
So I want to ask you a bit more about the VW partnership because it is totally extraordinary. And when the news broke last year, I think everyone was like, this is bonkers. This is so exciting. And a core part of that relationship is that you are developing a lot of software for vw. And again, those software defined a lot of the principles that underpin software defined vehicles and zonal architectures as you've described. Why is it that Rivian is better positioned to develop that stuff above and beyond VW's behemothly large organization?
- [32:08]
RJ Scaringe
Yeah, I should say this is a partnership we really enjoy. And working across the brands within Volkswagen Group has been a lot of fun. And I grew up, sometimes things like this just work out in a fortunate way. I grew up a huge car enthusiast and in fact I was a very big Porsche and Volkswagen enthusiast. So my first car is a Volkswagen. I worked on classic air cooled Porsches as a kid, spent a lot of time in a Porsche restoration shop with that. So it was like the brands that brought me into automotive enthusiasm somehow magically. Now Rivian is part of working together with those brands to bring their future state products to life. So that's just been like on a human level, wonderfully exciting and rewarding for me. But yeah, I think one of the unique things about the auto industry is when you look at the role of electronics and software that wasn't there in the beginning of the auto industry. So for businesses that have been around, you know, prior to the 1960s, they built deep domain expertise in building bodies, designing and building engines. And it's like ironic, but the first electronic, first piece of electronics that made their way into vehicles was actually in conjunction with the fuel injection system. So like cars were completely analog prior to the 1960s. And the first computer in a car was actually to control fuel fuel injectors. And we all remember this. In fact some vehicles even branded it where they put EFI on the side of the car, which is electronic fuel injection. Which seems sort of strangely humorous now to think that that was something to call out. But the beginnings of those electronic systems started with a controller for the electronic fuel injection system. And over the fullness of time, over the last 50, 60 years, we saw little controllers, little computers get placed around the vehicle to control is almost an island of salt, not almost an island of software, and a little piece of hardware to control different functions or what we often call domains. And so that may be A seat controller or an H Vac controller, or a body controller, or a vehicle entry controller, a lighting controller. And so over time that proliferated into, depending on the vehicle, 50, 75, in some cases, well in excess of 100 little electronic control units, little computers with little islands of software that were built and that became the status quo. That's, you know, with the exception of ourselves and Tesla here in the United States, every vehicle on the road has an architecture that is a collection of many little islands of software running on these little electronic control units. And so doing things like over the air updates or software releases is really difficult because you have a very distributed set of software platforms, each written by different teams. Often the suppliers that are providing those compute stacks, those little ECUs, don't even do the software themselves, but they subcontract it to another third party. And so you have in some ways like a very complex software architecture that, that I would say is often in many ways you could characterize it as the exact opposite of what you would do if you were to design it from a clean sheet today. And I'd say the way you'd want to design it, if you approach it as a clean sheet, you'd say, I'm going to have a very small number of computers, as few as possible. Those computers are going to have a common operating system and centrally perform all the decisioning and controls across many functions. And so what we now call that is a zonal architecture where you have a computer in a zone and in a large car like an R1, we have three zones, we have three computers that do all the real time decisioning and controls. On a smaller car, you can maybe could get that down to two or maybe even one. So a single computer car. But it's a wildly different technology topology. So instead of having multiple teams working with suppliers to develop these islands of software, you have one software team that looks at this problem holistically. And so as a new company, in our case, we just had the advantage of not having any legacy. So we started and we immediately, like said, we're going to own our software platform entirely. We're going to build our company as a software and electronics company first. So we have a very large software and electronics engineering team. It's actually we have more software engineers than we have mechanical engineers. And we never went down the path of building any reliance on the traditional or classic tier ones. So we built all this tech completely in house, which back in 10 years ago seemed like a wild crazy idea, like, boy, you're not going to work with the traditional tier ones to provide all these, these domain controllers. We said, no, we're going to do it all ourselves. And I remember myself and our head of software a few years ago, many years ago, I guess now, but I said to him, eventually, this is so cool that maybe we could sell this to other OEMs that also need to make this transition. And so it's sort of remarkable to be sitting here today and that maybe we could do this thing actually came true. And to be able to do this in partnership with the second largest car company in the world, VW Group, has been a lot of fun.
- [37:44]
Podcast Host
God, that is, I think, the definition of manifesting a dream, perhaps, but presumably, I mean, they obviously have invested a huge amount of money in Rivian as well. But you'd hope that it's a symbiotic relationship and potentially. Cheeky question. Does that relationship mean that you get access to their suppliers and their parts bins and there's anything that can help bring the costs down for, well, the cost per vehicle down from your side of things?
- [38:11]
RJ Scaringe
Yeah, yeah, it's a great question. I would look at that. Really. The nature of our partnership with Volkswagen Group is one element is the software, but there's a lot of other elements to the relationship. And one of the pieces that's maybe not fully appreciated, but in some ways is one of the most exciting elements is that is we design a platform that's going to exist on a Rivian R1, Rivian R2, a VW ID1, let's say a flagship Audi. We can commonize certain aspects of the platform, certainly the, obviously our operating systems being deployed, but then when we go out to source components, so our chipset that's going to be going across these platforms, it gives us enormous scale for making those sourcing decisions. And so one of the biggest cost categories in the vehicle are in aggregate, it's the electronics that exist in the vehicle. And so being able to now look at that through the lens of not just Rivian volume, but through Rivian and Volkswagen Group and benefiting all parties. So it allows, instead of Volkswagen Group sourcing multiple different ECUs from multiple different tier ones, we have a common platform backbone that we're building. And the scale effects, the economies of scale of that are just extraordinary. So we see cost savings, of course, for Rivian that are going to be quite significant that are coming. And we also see substantial cost improvements for products in VW Group as well. And so it was really a big part of the consideration when we were Looking at this partnership is driving these large economies of scale and really leveraging this platform that we built and the technology we built across many more vehicles.
- [40:02]
Podcast Host
I've got a couple of questions that I want to ask around. I guess the role of software within vehicles and how that relates to EVs in China as well as another big organization that you're working with. But before I do, very quick question. You're a huge Porsche fan. What are your thoughts on retrofitting classic Porsche's to electric?
- [40:26]
RJ Scaringe
It depends. I think it can be really cool. So a project I'd love to do in life someday would be to take a Volkswagen 21 or 23 window bus and put one of our dual motor rear drive units in it. So two motors per axle side of the. The motor that's in our quad today because it fits beautifully. So I think that type of project would be a ton of fun. As, as an enthusiast of, of the history of the cars, there's certain cars that I wouldn't want to modify. Yes. You wouldn't want to take like a 356 Carrera and take the engine out because it's just, it's a special piece of history. But certain Porsches that were made in a lot higher volume, I think it's, it, it's okay. It's cool.
- [41:15]
Podcast Host
So I had a, I drove a 356 Carrera the other day at the Goodwood Festival of Speed here in the UK And I'd like to tell you that I felt sophisticated and embodied the history of that car. I have never been more stressed in my whole entire life. I was just like, I'm so acutely aware of how expensive and beautiful this.
- [41:36]
RJ Scaringe
Yeah. How valuable the car is. Yeah. And that four cam engine sounds. So it's just a beautiful car. It's one of my all time favorites. Yeah.
- [41:46]
Podcast Host
Oh gosh. It was sensational. But I was like, no, I'm perfectly happy to just look at this rather than be responsible for driving this glorious machine. No, I think the VW and Rivian relationship is so interesting because it is marrying a legacy OEM and ensuring that that legacy OEM can journey into the future. Because it is leveraging your software expertise that you've been able to craft because of that clean sheet of paper approach. Lots of OEMs across the world are looking to what's happening in China where the vehicles are much more software defined by their nature. And I know that you have benchmarked a Xiaomi SU7 and I wanted to get your sense of a What did you think of it? And B, what were the things that you were like, Rivian's doing? Okay, we do not need to be worried about XYZ just yet.
- [42:38]
RJ Scaringe
Yeah, well, in China, you could almost think of it as like two categories of companies. There's the legacy Chinese companies, where from a technology stack point of view are very, very similar to Western established companies or legacy companies. And then there's a batch of newer companies in China that for a lot of the same reasons that we've seen Rivian's technology stack or Tesla's technology stack look very, very different than a traditional OEM is because they also start with a clean sheet. And as I said, if you're starting with a clean sheet, it'd be very hard to imagine if you're taking a true first principles approach, a true engineering centric approach, it'd be hard to conceive of why you'd end up with anything that looks remotely like the traditional electronics and network architecture. You see in vehicles that, as I said, you'd want a centralized compute, you'd want to own the hardware, so you'd want to own the design of all those computers, and then you'd want to build your own flexible operating system that can run across the whole vehicle. And so when I, when we look at China, I think we often conflate a couple of different things. So there's a separate the two big categories of discussion. One is the technology capabilities of those vehicles and then the other is the cost structure. And first I'll talk to the technology. On the technology side, I think Xiaomi that you referenced, it's an impressive vehicle. I think the way that they've architected it has a lot of similarities to some of the things that we've done. I think the feature set that the fit and finish of the vehicle, you know, just the overall completeness of it is really impressive. And you're putting aside, I think a helpful thing is putting aside like thinking about brand or market. Just if you're a customer and you had that available as a choice, would you buy it? It's very compelling. And so if you imagine living in China and cross shopping that with other products, you can see why it's done so well. So on the technology side, I think that's actually the part that should be getting the most attention because on the cost side, it's a bit of a difficult thing to look at because we often are looking at sort of comparing apples and oranges. We've taken lots of cars apart. Every car manufacturer does there's not something magical when you take it apart that's allowing these really impressive cost structures. You know, there's a secret magic thing that you're like, oh, aha, they did this. But rather it's the compounding benefits of a lower cost of capital. So the cost to build a plant in China is much, much lower. And in some cases it's free because the local government will support the build out of that factory. And that happens across the entirety of the supply chain. So you have a whole supply chain that has a much lower cost of capital. You then have a much lower labor cost in in country, both on a per hour basis. And then you also have a workforce that's that works more hours per week. So their effective costs in terms of overhead comes down. And then you have material costs that are fundamentally lower for a lot of the same reasons, lower capex and lower and lower variable cost. And so if you look at that on a single component, you may see a 30 or 40% reduction cost relative to something built outside of China. But when you stack that up across the thousands of parts that go into a vehicle and you compound that across the layers of supply chain, you just end up with a remarkably competitive cost structure. Now, the reason I described it as such, if you were to take that vehicle design as it is and move it to another country, let's say, produce that car in the United States or produce that car in Europe, all those cost benefits I just talked about, low cost of capital, lower construction costs, lower labor costs, lower raw material costs, they disappear. And so the cost structure doesn't. It's not something you can carry to another country. Now the technology you can. And so what I think is so interesting is this the cost piece that can be addressed. It's inconceivable, I would say, let me put it like this. It's inconceivable that Western markets would not allow their domestic manufacturers to produce in China, but simultaneously allow freely those Chinese companies to produce in China and sell. One of two things is going to happen. Either they allow everybody to produce in China, in which case manufacturing would likely shift out of those Western countries towards China. Or they would level the playing field by saying there's either a large tariff or you have to produce it locally to get around the tariff. But I can't imagine a country that would say we want to require our local company, our domestic companies to produce here, but everyone a Chinese company can produce in China and ship here without tariffs. I think more likely, as we'll say Chinese Companies can come here and produce in our country without tariffs or they can ship from China, but there will be a tariff to make up for the fact that all these contributing cost elements are very, very different. But what does come is the tech and the tech is remarkable. And so the way we think about our products and our technology, even though we're not selling in China and we're not competing against something like a Xiaomi SU7, we absolutely benchmark it because we want to have the best technology in the world. And so we feel confident in what we're building. We're constantly cross checking that to see how we compare to others. We do really honest, very objective views of that, unbiased, if you will, where we say like, how good is this? How good is our stuff? And I think the fact that we've seen not just our products, but we've seen VW Group make the decision to move on to our technical platform speaks volumes to just the robustness of what we've built and the scalability of what we built into future products.
- [48:49]
Podcast Host
It's a pretty interesting reflection and I suppose what you're really saying is like the tech is, is incredible.
- [48:55]
RJ Scaringe
I think that the tech is incredible, the cost is incredible, but the, the cost can be distracting. Like I think if you say, oh, it's lower cost because it's made in China, let's ignore it. The part that everyone needs to take note of is these are technically very advanced vehicles and more advanced than a lot of, than most of, I should say most of the western vehicle manufacturers. I'd say Rivian and Tesla being exceptions to that.
- [49:22]
Podcast Host
But it's interesting that technology is incredible, but that is not what's leading to the lower cost. It's the favorable Capex and Opex that exists within China that is enabling that competitive cost. But that doesn't take away from the technology itself being good. But they haven't unlocked some super, super innovative way of manufacturing in a super duper low cost way as well.
- [49:45]
RJ Scaringe
Yeah, I mean the manufacturing we have to of course keep in mind is manufacturing progress is very easily observed and it's replicated in a far easier fashion than technology. So to take, someone could buy, in fact, essentially every car company in the world has probably bought a Xiaomi. Every car company world has bought Rivians. They've taken our products apart, they've taken their products apart and you can see how they're manufactured. You can see opportunities, you can see things are done well, things that maybe you disagree with and you can then quickly deploy them. Say, hey, I want to deploy large castings, or I would like to deploy this joining technique. What's really hard to do is to say architecturally, they've completely rethought the way you look at software, network architecture, the topology of computers in the vehicle. They know you take apart a Rivian or Tesla, there's no Tier 1 supplied computers in the car and you say, boy, that's really interesting. Wow. They were able to, it does reduce cost, massively consolidate the number of computers. They have this really straightforward way of releasing software. But to replicate that, you need to build a very large and capable software engineering organization, a very large and capable computer design organization. And so if you look at the mechanical innovations that happen in manufacturing, those tend to become things everyone learns from pretty quickly. The state of the art, everyone catches up to that rapidly. But the technology gap, which is digital, which is software, which is skill set based, internal to the themes, is much, much harder to copy.
- [51:26]
Podcast Host
I know that we are coming towards the end of this. I'm going to turn our attention to a couple of slightly shorter questions. So, number one, very important question. You've been working with Amazon with the vans and specifically with Jeff Bezos. Were you invited to the wedding?
- [51:45]
RJ Scaringe
Everybody likes to talk about that. Yeah. Jeff's been a great friend and advisor. Yes. Before about starting the business and there's a quote he has which I think really relates to how I still think about the business, which is to be building a business, you need to be really firm on the vision but really flexible in the details. And so he's been a good friend, but no, I didn't go to his wedding, but I certainly sent him a congrats on it.
- [52:18]
Podcast Host
Firm on the vision and flexible on the details. I really like that. I'm going to steal that as well. If you had to apply for another job at another oem, which one would you choose?
- [52:30]
RJ Scaringe
That is a good question. Well, the company that I always, if it had to be another OEM and another job before I started Rivian, I always, when I was growing up, dreamed of working at Porsche. So I'd probably apply for a job at Porsche.
- [52:46]
Podcast Host
I wonder if they'd make you go through the normal application process or they might sort of make a few allowances.
- [52:52]
RJ Scaringe
Yeah, a test engineer at Porsche would be a lot of fun.
- [52:55]
Podcast Host
How would your management team describe you?
- [53:03]
RJ Scaringe
I would say very into the details, especially as it pertains to product and technology. Optimistic, but high standards for the team and probably some version of constantly pushing harder on timing and speed. Can we Go faster.
- [53:34]
Podcast Host
So it seems to me that you are incredibly passionate about the environment and in fact I think you had a year where you lived completely carbon neutrally or carbon free.
- [53:44]
RJ Scaringe
I tried to. It's sort of impossible in modern society.
- [53:47]
Podcast Host
But yeah, a valiant attempt. And I also get the impression that a huge part of your motivation is your children. So I wonder what you would say to anyone who is starting to dial back their electric electrification ambitions and their EV targets, etc, etc. What's the sentence that you would say to those OEMs?
- [54:13]
RJ Scaringe
I think the, the. This is a big challenge we have right now, which is we look at, you know, we have the benefit of looking at this through the lens of being a company that only builds electric vehicles. And so for us, 100% of our R&D and 100% of our focus is on electrification. For an existing company that has a majority of the revenue that comes from internal combustion or internal combustion plus electrics or hybrids, this needs to be looked at much more through the lens of a transition. And so what I've said many, many times, I think it's really important that every car company in the world is building deep expertise and capability at making super compelling electric vehicles. Because if we're not building super electric, compelling, super compelling electric vehicles, there's not going to be a reason for customers to make the transition. And I think relying on the vehicle being electric and customers being drawn to the fact that it's electric is the singular point of differentiation is insufficient. It needs to be. I'm buying this car because it's quick, it's fun, it's, it fits all my gear, it's cleverly, you know, it's packaged in a clever way. I love the way it looks. It drives incredible. Oh yeah. And by the way, it's electric. And so like that needs to be enabled because it's electric. And you know, we've seen that in the case of our R1, we have the best selling premium SUV, electric or non electric, just the best selling premium SUV in the state of California and the state of Washington. And you know, it's outselling any other premium suv, gas or electric. And so that's awesome. Like we're like have so many first time electric vehicle customers are coming in and they're drawn in because of what it can do on road and off road or because of the way it looks or because of its packaging. And so I'm really excited about R2 doing that as well. You know we've seen Tesla do that with Model Y really successfully where it's a really compelling product and they've pulled lots of non EV customers in. So we need lots of products like those. And I think every manufacturer recognizing they have a transition, recognizing that transition is not easy. I just hope they all continue to focus on building that core competency.
- [56:32]
Podcast Host
And last question. If you could be granted one wish by the power of the podcast, something that would just make your life just that little bit easier, and this can be a personal wish or a professional wish, what would you ask for?
- [56:46]
RJ Scaringe
Oh boy. It would probably be our biggest challenges tend to be within our supply chain, so things we don't expect happening or suppliers having challenges. So it'd be the wish would be for a magic wand to have supply chains work exactly as intended at all times.
- [57:15]
Podcast Host
Sure. Granted. We'll make it happen.
- [57:17]
RJ Scaringe
Yeah.
- [57:19]
Podcast Host
Well, honestly, this has been such an honor and such a delight. So thank you so much for being so generous with your time and for sharing your thoughts here on the podcast.
- [57:28]
RJ Scaringe
Awesome. Well, thanks for having me.
- [57:30]
Podcast Host
Thank you so much to RJ for giving up his time and for such a candid conversation. I personally so enjoyed it and I hope that you did too. Like always, there was not enough time to get into all of the different topics in sufficient detail, so we'll have to follow up with another conversation, which I think is no bad thing. But that's it. That is all that we have time for today. As ever, please do like and subscribe. And if you have been, thank you for listening and watching.