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Rivian ‘doesn’t want two battlefronts’ after pulling from Mercedes-Europe deal: Analyst Executive Analyst Karl Brauer joins Yahoo Finance Live to discuss Rivian halting its electric van deal with Mercedes-Benz along with President Biden's plans to ram up EV production across the U.S.

Video Transcript


PRAS SUBRAMANIAN: Rivian causing a jolt in the EV space earlier today, announcing it's pausing plans to develop an electric van Mercedes in Europe. Rivian only signed the deal three months ago. It's just the latest development driving down Rivian stock. Shares of the company falling more than 70% this year alone. Joining us for more is Karl Brauer, Executive Analyst. Karl, good to see you, man. Kind of a head scratcher here, pulling the plug so soon on this deal. What do you think happened exactly?

KARL BRAUER: I think, unfortunately, Rivian has a lot on its plate right now. You know, it's got plant capacity that's almost twice what they're producing on the vehicles they're already supposed to be making. And you rolled in all the problems we've had over the last couple of years, between supply chain issues and the price and availability of things like lithium, it's very hard to produce these cars, and it's very hard to produce them at a profit. We've seen it across the entire electric vehicle industry.

SEANA SMITH: Karl, what do you think this does for Rivian's global reach? Obviously, a huge setback to that and for future growth opportunities there.

KARL BRAUER: Yeah, I mean, I think one of the most impressive things we've seen from Tesla over the last five-plus years is how quickly they expanded outside the domestic market here and how successful that's been and how beneficial that's been. Any electric vehicle maker is going to need to follow that same path for long-term viability, including Rivian. This would have been a great stepping stone into more global reach and global markets.

And I'll throw in, too, that I feel like these commercial developments, that's where really these EV technology-- the EV technology almost makes more sense, right? I mean, consumers-- there are consumer use cases where it makes sense. But when you talk about vehicles that go on a very predetermined, predictable path, typically they're coming home every night to a hub, where they can charge all night, they go out again on the same predictable path, and they're very urban-oriented, which would have been a lot of the van production that we were talking about with Rivian and Mercedes, that's ideal for an electric vehicle. And so it's really unfortunate on that level too.

PRAS SUBRAMANIAN: Yeah, Karl, the IRA really kind of boosting a lot of those tax incentives for the commercial vans, both light-duty, medium-duty, and also heavy-duty. Do you think that's why we saw Rivian get cold feet here with Mercedes? Or is it more about the conserving cash that they so desperately need to go forward in the next two years or so?

KARL BRAUER: I think it's more of the latter. I think that they committed on the consumer side first. That's where they've put their priority up until this point. And I don't think they want to have basically two battlefronts. They don't want to fight on two fronts at this point. And they feel like maybe if they could go back and redo it, they might reconsider the commercial versus consumer emphasis. But they're too far down on the consumer side now.

And if they start to divert the other way, it could not work out for them on the consumer side as quickly as they need it to, but cost them what they've built up momentum-wise on the consumer side. It might not work out on the commercial side if they go that way too.

JARED BLIKRE: So, Karl, I'm a little bit of an outsider here, so just help me understand. It looks like there was a game plan going into the pandemic. Things changed quite a bit. Supply chains got disrupted. And now they have different marching orders. They want to go in a slightly different direction, but don't want to stray too far broadly from their original mandate because they have sunk costs invested in there. I mean, is that somewhat of where we are with Rivian right now? And just wondering, it seems like a lot of other companies in the space would be facing something similar.

KARL BRAUER: They are facing similar problems, and some are managing it better than others. Tesla gets a lot of credit for how well they managed their production and productivity in spite of the challenges of getting these raw-- these rare earth materials that they all need, like palladium and nickel and lithium, when the Ukraine conflict broke out. But some of them haven't been as successful at managing that.

And all of them are paying more money now, and it's really making them have to reevaluate their business plan. If you may recall that Ford admitted that the Mustang Mach-E electric SUV was profitable when it launched, but then it wasn't profitable a year later because of the elevated cost of producing it because of the raw material costs.

PRAS SUBRAMANIAN: Yeah, Karl, speaking of that, we just saw-- want to pivot here slightly-- we saw the government approving loans to GM. And it's-- and it's a joint JV with LG Energy with the Ultium cells to give them about 2 and 1/2 billion dollars for new plants in Ohio to build these materials. You know, this is sort of a slam dunk for the White House, right? You're getting money spent on manufacturing, union jobs, and then also you're supporting the EV industry. Is that how you kind of see it there? It's just like a win for everybody?

KARL BRAUER: It's critical that we get domestic production back for some of these items. And electric cars and electric car components, like batteries, is a good example. And I think a lot of us kind of knew that, and a lot of us weren't happy with the loss of manufacturing in this country. But if we weren't aware of it before, I think the pandemic helped really cement the concept that maybe we shouldn't totally depend on other countries on the other side of the planet to deliver essential things that we need here, especially in areas that we're looking for long-term future growth, like electric vehicles.

So it's a very good idea to support the domestic production of cars and battery packs. There's a lot of legislation that's passed in the last six months to do that. And we're starting to see the benefits from this latest deal with GM and LG.

SEANA SMITH: Yeah, Karl, certainly, the Biden administration taking a number of steps in order to boost EV production here in the US. But I think many analysts would argue that much more is needed over the next couple of years. What do you think is a more realistic or a realistic timeline when it comes to wider EV adoption here in the US and an infrastructure system that can support that?

KARL BRAUER: Yeah, that's the other big one, obviously, is that we just have to have the infrastructure. And it's very spotty, right? I mean, I'm in Southern California. I've been using two different electric vehicle test cars in the past week. And I was happily surprised at how easy they were, including a run from Los Angeles to Las Vegas and back. And I was-- first time I'd gone that far, and I was a little like, ugh. It was pretty painless.

But I know it's not like that across the country for people. And so you've got a lot of stations that aren't working. They're vandalized. They just aren't operating. Or there aren't enough, and you get there and there's a line that you got to wait 20 minutes, an hour. I didn't run into those, but that's not true everywhere. And we need to make sure that's true everywhere.

JARED BLIKRE: Well, good to know that range anxiety at least may be on the downtrend. Thank you for that, Karl Brauer.