Rivian and the 3-Stage EV Race
Anyone else a fan of multi-stage card games? They make family game night even more explosive, and I grew up loving them. Our game of choice was progressive rummy… You start by craftily trading with your uninitiated brother to get the hand you need. Then you play that hand and enter the second part of the game – waiting impatiently for everyone else, so you can “build” on their hands to discard your remaining cards. For the purposes of this story, the rules don’t matter, but trust me when I say it’s deliciously competitive. Why?
Winning the first part of the game helps – but doesn’t at all guarantee – that you’ll win the whole game. The skills and strategies you need are different.
Everywhere you look in life, there are multi-stage games. Landing the job is different from doing the job. Finding a partner is different from keeping them. You get it.
Today, we turn to another multi-stage game – electric vehicles.
Stage #1 – Race to Build Chargers
This matters because it limits the scope of evolution your customers have to undergo to use your product. People don’t like to evolve the ways they think and act. It’s uncomfortable and makes us feel vulnerable.
Think about the customer evolution that early EVs required of customers. Yes, you need to plan your route ahead of time to make sure there are charging stations. Yes, there are certain places you can’t go. Yes, you’ll need to spend an hour charging every 250 miles (Tesla’s 2012 Model S). That’s a tough sell.
But that story has changed. Batteries and chargers are better – you can go 400 miles on a single charge, and getting a partial charge of 250 miles (the prior max. range) only takes 28 minutes (2022 Model S). Charging infrastructure is much better too.
In this race to build the best charging network, it was essentially Tesla vs. everyone else. And especially early on – Tesla was winning. This created a moat around their cars and made it harder to be a new EV maker. So rather than try to build their own branded charging networks, most car co’s banded together around standard charging hardware.
But recently Tesla announced they were ending game #1.
Why?
First, they were losing ground to “open” competitors, even though they still had the advantage with fast charging. ChargePoint has 27K stations and 50K ports, compared to Tesla’s 2nd place 6K stations and 28K ports. On the fast-charging side, Tesla still has 1.6K supercharger stations and 17K ports, compared to 2nd place Electrify America’s 800 stations and 3.6K ports.
Second, they immediately add a bunch of revenue with minimal new cost. Piper Sandler (investment bank) estimates that opening its charging network could add $5B in revenue per year for Tesla within 10 years. As former Tesla exec Jonathan McNeill put it: “This is a bit of an AWS moment for Tesla” — they’re bringing an internal advantage to the external market, and it could be huge.
Third, the US government is paying. As reported in the LA Times and elsewhere, this is part of a $7.5B government incentive plan to help the US build more charging infrastructure.
Game #2 – Race to Market Share
Until recently, EV makers segmented almost entirely on price. Tesla went from ultra premium to affordable luxury – starting with the Roadster model (a unique, one-of-few luxury car), then the Model S, then the Model 3. Toyota’s Prius and others went directly after the mass market at a lower price point.
But price isn’t the only way to segment customers! Enter, Rivian.
Rather than purely looking at spending power, they’ve taken what I think is a brilliant, differentiated approach – targeting customers with very specific interests and behaviors. I’ll call Rivian’s target segment “The Adventurer”. The Adventurer loves the outdoors, is rugged and sophisticated, and is not poor – the Rivian’s 2023 R1S starts at $78K. If you’re thinking “what the hell is Jeep doing about that?”… then great question. So far, Jeep and parent co. Stellantis (formerly Fiat Chrysler, which merged with Peugeot) have been asleep at the wheel. Their CEO was quoted as saying that EV’s were being “imposed on them” by regulators, and they’ve been slow to respond. The first Rivians were delivered in 2021, and Jeep won’t release its first EVs until 2025 according to TechCrunch.
In the meantime, Rivian is tailoring features to its adventurers and building an adventuring ecosystem around the cars, going beyond just branding them as outdoors-compatible. Rivians have an always-ready flashlight built into the driver’s side door, “camp mode” to level the vehicle on uneven surfaces, air compressors, gear security systems, and tons of storage space. They also have a proprietary charging “Adventure Network”, which splits most of its stations between highways and campsites – reinforcing the adventuring ethos.
Ok we get it, they are being intense about this target segment and aligning their activities to reach them… anything else on this?
Yeah, I’ll just add that this stage of game 2 feels like the beginning of a fighting game like Tekken, where you get to choose your character based on the fighting style, special moves, and outfit you like best. I’m sure we will see mass market options that try to go after all customers at once (maybe the legacy car-makers will lead that charge), but I get more excited about the Tekken-style character choosing. We should expect to see ultra-premium EVs (Lambo’s and Ferrari’s), utility/workplace EVs (trucks, sprinter vans, etc.), and everything in-between. Each niche is an opportunity for car-makers.
While Tesla started out crushing game #2, they’re beginning to lose their monopoly on market share. They had 62% of EV share in the US in 2022 according to Bank of America analysts, down from the 78% peak in 2018.
Unfortunately for them, they can’t arbitrarily end game #2 the way they did game #1. They have to continue playing. But it’s not just them – everyone has to keep playing game #2 until game #3 kicks off in earnest.
Game #3 – Race to Self-Driving
Hang on what the hell? This is supposed to be about electric, not autonomous, vehicles. I know I know… but hear me out.
Imagine a world where only three cars exist. You have a gas-powered Audi A4, an electric Tesla Model 3, and a self-driving Waymo Way-mobile (patent pending).
In my opinion, Tesla beats Audi for 9 of 10 customers. Maybe 1 of 10 appreciates the nostalgia of Audi engine noise and the lurches of a gas-powered transmission, but the rest pick the faster, more performant Tesla. Similarly, I’d argue that 9 of 10 pick a self-driving Waymo car over a Tesla. You get thousands of hours of your life back, society gets safer transportation, and you can turn and face your bickering kids vs. yelling at them while facing forward. Everybody wins. Seriously though, I think autonomous vehicles will represent a huge disruptive threat to every car company out there.
There are many ways to mitigate the threat – here are a few:
Plan 1 – build an adjacent, sticky service. This is what GM is doing with Cruise robo-taxis. Sure, they’ll need to compete with ride hailing apps, but they’ll be alive.
Plan 2 – build a data moat. This is what Tesla is doing, collecting troves of data from its nearly 2 million cars on the road. Just as with other tech businesses, that data can be incredibly lucrative.
Plan 3 – build a huge EV business. During the changeover to AVs, the largest incumbents will still have an advantage, and retrofitting those EVs into AVs could work, at least in the short term.
Plan 4 – build a hardware moat. Whether it’s the batteries needed for unbeatable EV range, or the sensors needed to make AVs a reality, companies can secure their future the hard(ware) way.
Plan 5 – win the race to self-driving. Does this count as mitigating the threat?
These plans aren’t mutually exclusive… As I think through it, Tesla seems to be doing all of them except Plan 1. They’ve already built a huge EV business, they’re building their own batteries and optical sensors, they’re collecting data, and they’re beta testing their “full self-driving” in ~400K cars. They have a decent shot at being the company to crack self-driving (which I’ll revisit in more depth in a future article), but even If they don’t, they’ll be fine.
Wrapping up
For car-making newcomers like Rivian, I think it’s important to establish backup plans. Yes, continue to build your brand and attract customers from your target segment. But don’t get comfortable only living in game #2. Rivian could build the best self-driving sensors and EV batteries for offroad-conditions, making them ridiculously rugged and adaptable (Plan 4). They could also start collecting self-driving data about hard-to-reach places that their Rivian owners go (Plan 2). Remote locations with poor lane markings and infrequent traffic are likely to be among the last pieces of the self-driving problem to get solved, so Rivian could have a unique advantage here.
For incumbent car companies, they really need to get their act together or risk being left behind. Tesla’s opening the charging network (agreements already signed with GM, Ford, and Rivian) simplifies things for them, but they need to avoid dragging their feet (cough, Jeep). I’ve already mentioned GM’s Cruise business, which is good. Ford also strikes me as doing a good job on this front – launching electric trucks and Mustangs that risk cannibalizing the old business, while risky, is a positive signal.
Bonus Bullets
Quote of the Week:
“A huge revolution is coming...SoftBank Group won’t be deterred by a few short-term losses. We will rule the world in the end...We will not rest. We will be ever more fierce....I’ve made many, many mistakes in my AI investments, some of them embarrassing. But among the many failures, there are a number of buds that will blossom very soon.”
— Masayoshi Son, CEO of SoftBank
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