Elon Musk warns rivals Lucid and Rivian they will go bankrupt if they don’t cut costs – Fortune | Vette Leader

Elon Musk warned investors in Rivian and Lucid that the duo is on a glide path toward doom and that unless their course is corrected, the electric vehicle startups could both end up in the graveyard of failed companies.

Tesla’s polarizing CEO, even amid a “super bad feeling” about the direction of the global economy, has initiated measured cost cutting at his company, including a fat cut in middle management.

“Unless something changes significantly at Rivian and Lucid, they will both go bankrupt,” he said in part two of an interview with podcasters Tesla Owners Silicon Valley and the Kilowatts released Tuesday.

A key part of the problem, Musk says, is that the two are competing in an industry where there is generally very little profit from a new car and the majority of revenue comes from the lucrative aftermarket business.

Much like a printer company selling ink cartridges, or a razor company selling replacement blades, an automaker makes a large chunk of its income from replacement parts for a large fleet of existing cars on the road — something both Rivian and Lucid lack. Exactly what margins are is one of the industry’s best-kept secrets.

With shipments only beginning late last year, the duo are in the unenviable position of having to weather the current winds of stagflation before commencing production at their factories in Normal, Illinois and Casa Grande, Arizona, respectively. have powered up .

Bankruptcy by itself doesn’t have to spell the end of a company: Musk pointed out that General Motors and Chrysler were both bankrupt and under administration in 2009 before emerging under new ownership.

Rare warning

Yet as fears of an imminent recession mount, it is highly unusual for a CEO to publicly warn of the risks to their peers, for two main reasons.

First are reputation effects. Any criticism could be seen as motivated by the CEO’s self-interest and also counted as bad form. In addition, executives prefer not to spend valuable interview time praising or badmouthing competitors, but instead explaining the benefits of their products.

Second are financial risks. From someone as knowledgeable about the electric vehicle industry as Elon Musk, a warning that Rivian and Lucid could go bust could deter both potential investors and lenders providing equity and debt, especially in a bear market.

By picking out certain competitors heading for bankruptcy, Tesla’s CEO exposes himself to the very real threat of litigation.

Possible threats

While both companies are effectively in their infancy, they still pose some threat to Musk’s far larger, battle-hardened company.

Lucid earned the accolade that his Air sedan has the longest range on a single charge at 517 miles of any EPA-rated vehicle on the road, easily beating Musk’s Model S.

A month after the Air was first unveiled as a prototype in August 2020 to rave reviews in the media, Musk suddenly promised to bring a new Model S Plaid with at least 520 miles. Then, less than a year later, he broke that promise because that much was “not necessary” and the Plaid ended up only offering a range of 348 miles.

It seemed to critics that the Tesla CEO was trying to bring down an up-and-coming rival by drawing media attention with an even bolder promise he himself couldn’t deliver on.

And the critically well-received Rivian R1T pickup easily beat Tesla’s Cybertruck in the marketplace, prompting Musk to pull the advertised specs and prices of its models over the past year and create a new version with the same quad-motor powertrain layout how to announce the R1T.

‘Guaranteed to fail’

But both startups are now struggling. Lucid’s shares are down more than 60% from their January high, in part due to parts shortages, production setbacks, and delays in going to market.

And while Rivian was briefly a stock darling when it raised $12 billion in the biggest IPO of 2021, its fortunes quickly deteriorated thereafter.

Financial and strategic backer Amazon began forging deals with competitors like Stellantis for electric vans; Ford withdrew from a joint project in favor of going it alone; and chipmakers chose to allocate their limited supplies of valued semiconductors to other automakers during chip shortages.

Nowhere were Rivian’s missteps more apparent than in the disaster surrounding its failed attempt to raise prices for existing reservation holders, most of whom had been waiting well over a year for delivery. Within 48 hours, CEO RJ Scaringe reversed course and admitted that destroying his hard-earned goodwill in the blink of an eye was his biggest mistake yet.

Perhaps more worryingly, both Rivian and Lucid lack scale, and while their production is a tiny fraction of Tesla’s size, their cost can be just as high in some cases. For example, Tesla reported $2.2 billion in operating expenses in the fourth quarter, slightly higher than the $2.1 billion Rivian reported during the period.

Musk didn’t pull through: “My advice to Rivian would be to cut costs drastically across the board right now, otherwise they’re doomed.”

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