Rivian and Lucid: Future Leaders or Laggards?

The rise of Tesla is an amazing story. Its rise has helped to establish the EV industry and has made some investors very wealthy. It has also made many people want to find the next Tesla and contributed to an increase in investor enthusiasm for EV stocks. Rivian and Lucid are two of the most prominent American EV companies that have come public in the past few years. In this article, I am going to discuss the future of Rivian and Lucid and how they compare to other automakers.

Manufacturing Prowess: The Key to Success

When looking at the EV market, two companies stand out as behemoths, Tesla and BYD. In the first quarter of 2023, Tesla and BYD were the top two EV manufacturers in the world by market share, with 23.6% and 14.7%, respectively, of new EV registrations. BYD also has a large plug-in hybrid business. Even though Tesla and BYD already control over a third of the combined EV market, they both are continuing to scale up production quickly and are gaining market share.

Put simply, the biggest reason that Tesla and BYD are the EV leaders is because they produce the most EVs. This might sound like a Captain Obvious statement, but it is an often overlooked component. What I mean is that scaling production of EVs is not easy. Actually, it is very hard. Tesla and BYD have been the most successful with their ability to scale, and subsequently, they have become the EV leaders. Tesla’s and BYD’s biggest strength, in my opinion, is their production ability and efficiency. They have found a way to make a lot of EVs and to manufacture them efficiently enough to be profitable. This is a big difference from some other auto manufacturers which are struggling to quickly ramp up production and are losing significant amounts of money on each EV sold.

The ability to manufacture and deliver vehicles remains a major question for Rivian and Lucid. In Q2 2023, Tesla delivered 466,140 EVs while BYD delivered 352,163. In comparison, Rivian delivered 12,640 EVs and Lucid delivered 1,404. Even some legacy automakers far surpassed Rivian and Lucid. Volkswagen Group sold 180,600 EVs in Q2 2023, Hyundai sold about 78,000 EVs, and Mercedes-Benz sold 56,300.

So far, neither Rivian nor Lucid have shown, in my opinion, evidence to suggest the manufacturing prowess that Tesla and BYD have. Nor have they shown significant evidence that they will develop manufacturing capabilities to surpass some legacy auto manufacturers. Furthermore, unlike Tesla and BYD, Rivian and Lucid haven’t proven that they can be profitable. Rivian, for example, lost about $67,000 on each vehicle it sold in quarter one.

The challenges of scaling production and being able to produce EVs efficiently enough to generate a profit are issues that almost all automakers are having to face. Legacy automakers are facing many of the same challenges in this regard as Rivian and Lucid. However, legacy automakers have some advantages which, in my view, give them an edge over Rivian and Lucid with regards to manufacturing. Given that many legacy automakers have much greater scale currently in terms of total number of vehicles produced, they have some economies of scale advantages compared to Rivian and Lucid. They also have more factories which they can convert from producing internal combustion engine vehicles to producing EVs.

It is possible that Rivian and Lucid significantly improve their ability to manufacture EVs. I expect that, with time, they should be able to continue to boost production and that costs should come down with greater scale. However, up to this point, I don’t see anything that makes me believe that they have or will acquire any advantage over many legacy automakers let alone Tesla and BYD with regards to manufacturing ability.

Competitive Advantage

Does Rivian and Lucid have a competitive advantage? Anything that fundamentally separates them from other companies?

We already reviewed that Rivian and Lucid haven’t proven that they have superior manufacturing capabilities, so they don’t have a competitive advantage in terms of manufacturing. What about in technology? Once again, I think the answer is no. Lucid seems to have impressive electric motors and has designed a very aerodynamic sedan in the Lucid Air, but I haven’t seen anything from Lucid that significantly separates them from what other companies can do to the degree that I would call it a competitive advantage. Rivian doesn’t seem to have any technology worthy of being considered a competitive advantage either, in my opinion.

What about brand prestige? I don’t think that Rivian and Lucid have any competitive advantage in this category either. Neither of these brands have built up the luxury prestige and name recognition that companies such as Porsche and Mercedes-Benz have, nor have they developed a fame for being on the cutting edge of technology that has translated into a large loyal following like Tesla has done. As newer companies, neither company has an established base of repeat customers.

The lack of luxury prestige is particularly challenging for Lucid, which wants to compete against premium brands such as Mercedes-Benz. Luxury prestige is typically developed over many years. Even if Lucid can compete against Porsche and Mercedes-Benz and other premium brands on features, I don’t think it will be able to compete on prestige, which is a major selling point for premium brands.

One advantage that Rivian and Lucid have over legacy automakers is that they are focused exclusively on EVs. They don’t have to divide their focus and resources between internal combustion engine vehicles and EVs. While this is an advantage, I wouldn’t overestimate its benefit. BYD, for example, has become an EV leader despite continuing to manufacture vehicles with internal combustion engines (BYD had manufactured traditional internal combustion engine vehicles until March 2022. Now, it only manufactures hybrids and EVs). Also, many legacy automakers are planning on going all-electric in the future, so this advantage will eventually dwindle. Being focused solely on EVs also doesn’t give Rivian and Lucid an advantage over other all-electric brands such as Tesla, Polestar, and Nio.

A Little to Late

Rivian and Lucid are, in my opinion, a few years too late. A few years ago, there was a scarcity of choices of EVs. Consumers looking for a long range, daily driver EV had a scarcity of options other than Tesla. Had Rivian and Lucid started delivering EVs then, they would have had a much less competitive market. Consumers looking for a full-sized EV that could serve as a daily driver but wanting something different from a Tesla would likely have taken a very serious look at Rivian and Lucid since there were few other choices.

Now, however, there are numerous other EVs on the market or coming on the market soon, and the number is steadily growing. The Ford F150-Lightning, GMC Hummer EV, Chevy Silverado EV, GMC Sierra EV, and Tesla Cybertruck all are currently or expected to shortly be available and compete against the Rivian R1T, Rivian’s truck. The number of SUVs competing against Rivian’s SUV, the R1S, is even more numerous, including the Mercedes EQS SUV, BMW iX, Cadillac Lyriq, Audi e-Tron, Ford Mustang Mache E, and Tesla Model X and Model Y, among others. Albeit, not all of these SUVs are in the same class of vehicle as the Rivian, which is larger than many other SUVs, but the point stands that there are now a significant selection of electric SUVs available. Competing against the Lucid Air is the Mercedes EQS, Audi e-Tron GT, Porsche Taycan, BMW i7, Tesla Model S, and Genesis Electrified G80, among others.

The electric SUV and luxury electric sedan markets look to be increasingly crowded, and Rivian and Lucid may struggle to stand out. Albeit, there is always the possibly for Rivian and Lucid to take market share, but I believe the playing field is no longer as open as it had been a few years previously.

The electric truck market, on the other hand, seems to be a more open field. Fewer companies currently have plans for an electric truck, so this is one area that Rivian may do well to prioritize. Rivian also produces electric vans, and it has an agreement to produce 100,000 electric vans for Amazon, one of Rivian’s shareholders. Electric vans are another market were Rivian will likely face less competition than with SUVs. The key, though, for Rivian will once again be the ability to quickly scale production. The longer it takes Rivian to scale, the more opportunities that competitors have to compete in the electric truck and van markets.

Conclusion

Rivian and Lucid have a chance at a bright future. Unlike some EV startups, they actually have factories and are manufacturing and delivering EVs. However, much more must happen if they are to grow to become large, profitable automakers. Their lack of competitive advantages makes me question how successfully they will be able to compete against already well-established automakers, and their ability to efficiently, effectively, and quickly scale production also remains a major question. Overall, Rivian and Lucid have not yet proven to me that they will be able to outcompete many legacy automakers.

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