Automotive Ecosystems – The $100bn Pitch

Rivian will have to stop making cars.

• If Rivian wants to start supplying the automotive industry with EV and software platforms, it will have to widen its offering, make its deal with VW a success and crucially, stop making cars.
• Following the mutual rescue of Rivian and VW, where one supplied cash and the other technology, Rivian is now pitching other members of the automotive industry to use its platforms rather than building their own.
• VW rescued Rivian in that it is still burning cash, and Rivian rescued VW, as despite $12bn being spent on in-house EV platforms and software, very little that is usable has resulted.
• The idea here is that VW will switch its EVs to the Rivian platform and software and thereby save a fortune on trying to do something with which it has really struggled and lost a fortune in the process.
• VW is far from alone in this, and given the ill-fated headlong rush into electric vehicles starting in 2020 that has now resulted in over $100bn of write-downs in EV assets, Rivian has a point.
• If everyone were to switch to a single base platform for EVs and a single platform for vehicle software, EVs would become significantly cheaper for everyone to make, and the foundation would be laid for a thriving digital ecosystem in the vehicle.
• This is because anyone who wants to develop a service or an app for users in the vehicle would only have to write their app once, and it would run in any vehicle with no problems.
• This is what has underpinned the large smartphone economy, where there are effectively two platforms, and developers can access billions of users with a single app rather than many versions.
• In the automotive industry today, it is a nightmare of fragmentation as everyone has their own platform and where developers have to pay to put their apps into vehicles.
• This state of affairs is very risky because, at some point, users will just get fed up with a poor software experience and use Apple CarPlay and Android Auto instead for their apps and services in the vehicle.
• This removes the OEMs from the digital vehicles economy and turns them into Android handset makers in the best instance, leaving them in an even more difficult position than the one in which they currently find themselves.
• Into this state affairs enters Rivian, and with certain provisos, RJ Scaringe is making an interesting pitch.
  • First, cost: where Rivian’s platform is simply too expensive to build for any vehicle that is not aimed at the high-end aspirational segment of the market.
  • This, along with the usual infighting and power struggles, is plaguing the current j.v. with VW.
  • The j.v. needs to take the current platform and make it more flexible, such that high, low and mid trim level vehicles can be based on it, which is proving to be more difficult than expected.
  • The end result needs to be extremely stable, cost-effective and very flexible if the j.v. wants to have any hope of success.
  • Any hope that Rivian has of licensing this elsewhere also depends on this working extremely well.
  • Second, independence: which is by far the biggest problem.
  • Any vehicle maker will look at Rivian and feel that it risks being disadvantaged by depending on the technology and software of a competitor.
  • VW can not be rolled out as an example of Rivian’s independence, as when it did the deal, VW was desperate and did not really have the luxury of choice.
  • The answer is that Rivian either stops making cars entirely (not as crazy as it sounds) or splits into two completely independent companies such that other customers feel that they are being fairly treated.
  • Third, customisation: which is always a big problem in the automotive industry.
  • The digital experience is becoming a differentiator, and so OEMs want to have the freedom to create a completely customised user experience.
  • However, to ensure consistency for developers to create apps and services, there needs to be a minimum level of consistency between vehicle makers which comes at the cost of a certain level of customisation.
  • The automotive industry is very poor at discerning between differentiation that matters to the user and differentiation that does not, and has made little progress on this front over the last 10 years.
  • Hence, selling a standardised platform to an OEM is a very difficult process, and Rivian will have to ensure that its platform is highly customizable while at the same time maintaining critical commonalities that will allow economies of scale.
• The net result is that I like this idea from Rivian as it has a platform that makes good vehicles with a fairly decent user experience.
• This is quite a lot more than almost all of the other car makers, many of whom have just given up on billions of dollars of EV investments, meaning that Scaringe is making his pitch at the right time.
• However, has to either give up making cars or split the company into two.
• In my opinion, if Rivian is going to go down this road, it would be better to close or sell the car-making business and the brand to someone else and focus on making EV and software platforms for the industry, thus assuring its complete independence.
• The question is whether RJ Scaringe can bear to part with the operation that he created, as almost all engineers love making things too much.