Rivian challenges traditional automobile industry
In Rivian — the newly public, California-based company that's ramping up electric vehicle production at the old Mitsubishi plant in Normal, Illinois — we're getting a glimpse of what the future might look like for the auto industry. And that includes the coming transformation for many other industrial segments.
Rivian raised nearly $12 billion in early November, making it the most successful initial public offering in the U.S. since 2014 and the new darling in the electric vehicle-making arena.
The company is in a fiercely competitive space where more than 85 new models of electric vehicles will be coming to market over the next several years, Bank of America analyst John Murphy and his team project.
But Rivian has a well-constructed business plan and holds pre-orders from consumers for more than 55,000 pickup trucks and SUVs, and from Amazon for 100,000 delivery vehicles, Murphy and his team said. Murphy's group initiated coverage in early December with a “Buy” rating on the company's stock.
“The company has outlined one of the broadest business strategies to capture revenue from the consumer well beyond the initial point of sale, citing an opportunity that full vehicle life cycle revenue could be as large as initial purchase revenue,” they wrote in their report.
That means Rivian is aiming to build a platform — a mountain of invisible network technology and data analytics — that creates a sustained and dynamic relationship with the customer of every one of its vehicles. That platform, by the way, would theoretically cut out dealerships, gas stations, insurance brokers, independent auto repair shops, banks and other lenders, and fleet management firms. And there are probably more.
It's the California social media model applied to the auto industry. While you enjoy the features and convenience of the user experience, the invisible tentacles keep tightening around you.
Amazon Alexa and other virtual assistant technologies already have proven that a heck of a lot of people don't much mind that tightening.
Rivian's approach isn't new to the auto industry. Tesla has been inching toward it for some time, adding idling fees in 2020, for example, for fully charged cars that stay plugged in at charging stations and a $199 subscription in July for its Full SelfDriving package.
But what wowed Wall Street was the elegance of Rivian's plan. The thoroughness of the way its direct-to-customer relationships and connected
vehicle technology allow it to gather customer and product insights that drive continuous improvement with new capabilities and functions, as the company said in registration materials it filed before going public.
Rivian’s cloud and other technological capabilities, housed on a single platform, give it the pinpoint control, for example, to track software updates by vehicle model, geographic area, and customer. It can deliver updates to a specific vehicle or to a subset of vehicles that fit a profile. “We intend for each vehicle sale to be the start of a lifelong relationship with our customer,” Rivian said in the registration documents.
That, in a nutshell, is the tsunami of change that Rivian has captured so well. And the change that our region’s capital goods manufacturers must embrace to survive.
Every piece of transportation, construction, and agricultural equipment, whether on or off-road, will be connected by network technology that monitors it 24/7. The technology enables manufacturers to deliver a package of services that makes ownership simple and creates a virtuous cycle of improvement by feeding back to them the use characteristics, wear patterns and failure factors to inform better products going forward.
Our region thrived in a “make it/ move it” world. But those activities alone are no longer enough to survive and prosper in the 21st Century industrial economy. Remote sensing, digital data streams and artificial intelligence — all the tools that Rivian has integrated so well into its plan — are adding “monitor and maintain” to the manufacturing mantra.
The good news is that the transformation will convert the industrial base business model from one-time sales to long-term relationships with recurring revenue streams. When that happens, the market multiples of old-line industrial companies that adapt to the new paradigm will double.
The bad news is that we’re behind. While it’s cause for celebration that Rivian chose to make its vehicles in Normal, it should be lost on no one that Rivian’s headquarters and decision makers are in California.
The West Coast technology juggernaut is moving into the capital goods world and Rivian is an early case in point. The “make, move, monitor and maintain” strategy will transform capital goods industries — and it will own the customers.
I mentioned those invisible tentacles. Companies that don’t connect with their customers the way Rivian is doing will lose them.
Welcome to the future of the industrial Heartland.
Kathleen Gallagher was a business reporter at the Milwaukee Journal Sentinel and the Milwaukee Sentinel for 23 years. She was one of two reporters on the team that won a 2011 Pulitzer Prize for the One in a Billion series. Gallagher is now executive director of 5 Lakes Institute, a nonprofit working to grow the Great Lakes region's high technology entrepreneurial economy and culture. She can be reached at Kathleen@5lakesinstitute.org.