In Illinois, Tesla-like dreams for an EV startup, former Mitsubishi factory

May 21, 2018 01:00 AM

Steven R. Strahler

RIVIAN AUTOMOTIVE

RJ Scaringe is CEO of Rivian Automotive, which paid $16 million for a former Mitsubishi Motors assembly plant and its equipment in Illinois. The factory is being converted to produce battery-powered EVs.

RJ Scaringe isn't the first entrepreneur to start a company straight out of school. What's unusual is the scale of his ambition. He's running a capital-devouring car company.

Scaringe is 35 and CEO of Rivian Automotive. The company paid $16 million for a mothballed car factory and its equipment in Illinois to produce battery-powered vehicles -- a pickup first and then an SUV.

Illinois taxpayers are involved, too. Rivian is promised more than $50 million in subsidies, mostly income tax credits or property tax waivers tied to investment and job creation at the plant in Normal, the central Illinois town better known for Illinois State University.

Like Tesla's Elon Musk, Scaringe is counting on full-scale disruption of the auto industry. Just 0.6 percent of the 17.2 million light vehicles sold in the U.S. last year were battery-electric, neither gasoline-fueled nor plug-in hybrids.

Moody's Investors Service forecasts full battery power will account for 7 to 8 percent of global light-vehicle sales by the mid-2020s and nearly 20 percent by the end of that decade.

The challenge for automakers is similarly shape-shifting. Tesla has piled up losses approaching $6 billion since Musk founded the EV maker in 2003 and continues to bleed cash. Musk described ramping up production of Tesla's first mass-market car as "production hell."

Scaringe recognizes the steep hill ahead but says Rivian, headquartered in suburban Detroit, has something entrenched carmakers don't: the luxury of starting from scratch.

All the same, warns Rivian director Tom Gale, Chrysler's former head of global design who helped create the minivan, "it's not going to be an easy game -- you've got to be meaningfully differentiated from the others that are out there."

Rivian said it has secured about $450 million with sources including the investment arm of ALJ and Sumitomo Corporation of America as well as several other unnamed capital sources.

Moreover, Rivian got the Normal site, a relatively modern former Mitsubishi Motors plant where production ended in late 2015, on the cheap, picking it up from a liquidation company in January 2017 after looking at buying its equipment.

The 2.6 million-square-foot white whale is only beginning to stir to life. A sea of cars on the lot today are not electric; they're recalled Volkswagens flagged for diesel emissions violations, temporarily renting space. Rivian's five-passenger pickup, so far unnamed, won't roll off the line before 2020, offering midlevel self-driving capabilities initially. It will cost no less than $50,000 and go 400 miles between charges.

With a car-salesman's hype, Scaringe says, "They will be truly unlike anything else," accelerating to 60 mph in less than three seconds, "faster than a Ferrari."

Yet it could be just one of 450 EV models by 2025. Silicon Valley's Uber Technologies and Google sibling Waymo loom as potential competitors as developers of self-driving systems. Detroit and other conventional automakers aren't sitting still, to say the least. They've invested $70 billion in EV technology since early 2017, according to The Wall Street Journal.

Morningstar analyst David Whiston says getting into EV production is one thing; lasting is another. Rivian's $500 million in investor capital is "nothing," he says, adding, "These guys don't have Elon Musk, the greatest marketer of the 21st century."

The Rivian plant in Normal, Ill.

Normal plant's heyday

During its heyday, the Normal plant, a joint venture of Japan's Mitsubishi Motors and Chrysler formed in the mid-1980s, churned out 200,000 Mitsubishi Gallants, Dodge Avengers and other nameplates a year. Mitsubishi walked away from the plant after employment and production dwindled by two-thirds.

Critics say it consumed $250 million in public subsidies without fulfilling a goal of spurring a local supplier base. Former Illinois Gov. Jim Thompson, who led the charge for the plant, defends the state's $88 million in outlays, which included highway spending he says would have occurred regardless.

The plant also gained notoriety for a Rainbow/PUSH Coalition boycott and a $34 million settlement in 1999 with 450 female workers who claimed they were sexually harassed. The plant was unionized. Scaringe says only that he has had "friendly early discussions" with the UAW. The UAW won't comment.

Rivian says it won't reach maximum production until the late 2020s, with projected employment of at least 1,000, compared with 50 today and 3,000-plus under Mitsubishi. Rivian, for now, is buying -- not making -- the most valued-added components of EVs, the lithium battery cells.

This time around, the state is offering $49.2 million in tax credits over 15 years, tied to the company investing an undisclosed amount and creating 1,000 jobs by the end of 2024.

"Rivian" is a partial anagram of Scaringe's Indian River boyhood locale in Florida, where his engineer father heads a contractor doing defense-industry and other research. His mother was an early-childhood educator. A car buff "probably since before I was walking," Scaringe says he restored vintage Porsches and received a doctorate at Massachusetts Institute of Technology's Sloan Automotive Laboratory, concentrating on lean manufacturing and drivetrain technology.

Advantages

He took two stabs at the car market under different company names, initially focusing on building a hyperefficient internal-combustion engine. Some analysts believe EVs will be cheaper than conventional cars by 2025. About half of the cost is the battery, whose price is expected to fall three-quarters by 2030.

To gear up, Rivian hired McLaren Automotive alum Mark Vinnels to head engineering and vehicle programs. The vice president of manufacturing is Matt Tall, who managed a Hummer H2 plant in Mishawaka, Ind. In a sign of the times, China-backed SF Motors is converting the Indiana plant to build EVs.

Gale, 74, godfather of the PT Cruiser, says he was "somewhat responsible" for the Chrysler-Mitsubishi joint venture and its Normal output. Rivian has advantages, he says: "Having come in on the ground floor . . . takes away a huge portion of the cost; you don't have to invest in the tooling."

The industry's new age both excites and worries Gale. "To be totally candid, I don't know where this is all going to go," he says, sure of one thing: "You know those who are there first are going to enjoy differential success."