Spotting an electric truck on the road remains a novelty in most of the US, but not Normal, Illinois.
The town in the Midwestern corn belt is home to the manufacturing operations of Rivian, the battery-powered vehicle start-up worth more than Ford or Volkswagen soon after it listed 18 months ago.
Rivian’s market capitalization has since crumbled from a peak of $162bn to $12.5bn in the face of production shortfalls and intensifying competition from carmakers both established and new.It is expected to report a $1.7bn operating loss on $654mn in revenue in first-quarter results due on Tuesday, according to a compilation of analysts’ estimates.
Much of Rivian’s future is riding on Normal. And the economy of Normal, population 54,000, is now tied to Rivian. The town government bought one of its trucks for its fleet and has ordered a sport utility vehicle.
“We want it to succeed,” said Keith Cornille, president of Heartland Community College in Normal.
Rivian founder and chief executive RJ Scaringe chose Normal for its first factory, buying a former Mitsubishi car plant weeks away from demolition for $16mn in 2017. The purchase price on the old factory was a bargain, and Normal — the site of the Midwest’s first Tesla supercharger — had attempted to position itself as an electric vehicle hub. Scaringe told a local radio station that the Normal area, with a diverse economy that includes agriculture, universities and the headquarters of the State Farm insurance company, was different from other regional towns that had lost manufacturers.
“If you look at other plants in the Midwest, and areas affected by their plants shutting down or manufacturing moving out of the area, you don’t have this level of energy,” he said. progressive thinking.”
The company is now the second-largest employer in the metro area that includes Normal and neighboring Bloomington. About 7,500 people work at the plant, roughly half of its workforce. Signs of enthusiasm for Rivian are visible around town, from the company logo embossed on the mayor’s Patagonia jacket to the “Rivian Buzz” popcorn sold by a local shop, topped with sprinkles in the carmaker’s signature blue.
The factory struggled to meet ambitious production goals last year, slashing deliveries to 25,000 vehicles from 50,000 as first planned. The problems recalled challenges that confronted Tesla when it scaled up, a period its founder Elon Musk described as “production hell”.
“What we’re witnessing now is the difficulty of scaling up production in the auto industry,” said Fitch Ratings analyst Stephen Brown. “It’s a very expensive proposition that requires a tremendous amount of cash in the early years, and manufacturers have to get through that before they can get to scale and start generating some profitability. . . It’s a race to get to the other side, before the cash runs low.”
One of Tesla’s early, high-profile manufacturing included mistakes making late changes to products that forced suppliers to change their tooling, adding costs to the process and straining all-important supply chain relationships.
At Rivian, a late change to the headlights sent ripples down the supplier base and forced expensive tooling changes, according to two people with direct knowledge of the process.
The speed of the vehicle design process meant that design flaws “were coming up as we were building the vehicle”, said one former employee, with last-minute changes causing “hiccups”.
“It’s a common affliction among the start-ups, they all underestimate how difficult it is to perform the assembly operation,” said one supply chain consultant who works with several US-based manufacturers.
Tim Fallon, vice-president for manufacturing operations at Rivian, joined the company after 16 years at Nissan. While the start-up did make mistakes, he said, “I wouldn’t call it ‘production hell’. in the auto industry.”
The company now was emphasizing “design for manufacturability”, he said. That means adjusting how a vehicle is put together so it can be done more efficiently, with fewer mistakes. , systems that allow electricity to flow through a vehicle.
The semiconductor shortage that bedevilled the automotive industry in 2021 and 2022 hit Rivian, too.It deployed employees to suppliers to help them meet the carmaker’s needs.But some suppliers prioritised sending chips to bigger customers delivering cars by the millions.
“The economies of scale is definitely real and has had an impact,” Fallon said. “Now that we have proven that we can build and can get product out . on more level footing with the other [manufacturers].”
Rivian now plans to produce 50,000 vehicles in 2023. It began hiring for a second shift in Normal hiring at least 1,700 people by the middle of the year. “They’re starting to get their production up,” said Chris Koos, Normal’s mayor. “They’re all drinking from the fire hose out there right now.”
The company faces a tight labor market, Koos said. The unemployment rate for the area in March was 3.4 per cent, just under the US figure. As Rivian expands, the region’s share of people employed in manufacturing has climbed rapidly: it jumped from 1.9 per cent in March 2022 to 9.9 per cent 12 months later.
Aiming to build the local workforce, Normal’s community college developed a program to train students on the manufacture and repair of electric vehicles and batteries. Heartland received a $7.5mn grant from the state of Illinois and is building a nearly 6,300-square foot facility where students will work on vehicles. Rivian has loaned vehicles and an instructor to the program.
“We try to change as quickly as we can to meet their needs,” Cornille said. “They need more workforce.”
The hot local labor market is running hand in hand with a hot property market. A 2022 report from the Bloomington-Normal Economic Development Council found that Rivian’s arrival “has placed a considerable strain on the regional housing supply. New workers to the region cannot find adequate housing and longstanding residents are facing rapidly increasing housing costs.” The price of a typical home rose 32 per cent in Normal between January 2017 and January 2023, according to Zillow.
Homebuilder Marty Trunk said his business Trunk Bay Companies had expanded from five to 10 houses a year to a range of 15 to 20. Some customers have been Rivian employees. Since 2021, the year Rivian’s first truck rolled off the Normal assembly line, he has wired garages to make it easy to install an electric car charger.
“It’s been a huge boost for our town,” Trunk said. “There are a lot of people cheering for them.”
Rivian burnt $6.4bn in cash in 2022, ending the year with $11.6bn on its balance sheet. Chief financial officer Claire McDonough said in February that the burn would slow next year when Rivian expects to earn a gross profit, compared to a $3.3bn gross loss in 2022. The company had enough cash to fund operations through to the end of 2025, she said.
For 2023, Rivian forecast an adjusted loss before interest, taxes, depreciation and amortization of $4.3bn. McDonough said the company’s long-term financial targets included an adjusted earnings before interest, tax, depreciation and amortization margin in the “high teens”, but did not specify the timeline.
Wall Street and Normal’s Main Street will be watching closely.