In early 2021, reports began to circulate that US-based electric vehicle (EV) manufacturer Rivian was planning to open a new factory in Europe. The new site is expected to initially produce the delivery vehicle that Rivian is developing for Amazon, although it will eventually manufacture vehicles for private customers.
The company is rumoured to have scouted locations in Germany, Hungary and the UK. There are also reports of a possible collaboration with Netherlands-based VDL Nedcar, which currently produces cars for BMW.
Investment Monitor has analysed ten of Europe’s top automotive FDI destinations to assess which is the best location for Rivian’s new facility.
The EV revolution continues despite challenges
Despite supply chain bottlenecks and a hike in raw material prices, the EV market continues to achieve significant growth. Its global market share nearly doubled in 2021, when compared with 2020. Annual sales are forecast to increase tenfold in the next 15 years, with China and Europe leading this growth.
An increasing number of countries plan to phase out the sale of new petrol and diesel cars. In turn, EV sales look set to surge. Countries including Japan, Singapore and the UK plan to prohibit the sale of new fossil fuel vehicles by 2030, while the EU will introduce a ban from 2035.
Rivian’s new European factory would guarantee the company a foothold in the growing regional market.
Rivian valued at more than $100bn after Nasdaq debut
Founded in 2009 and headquartered in Irvine, California, Rivian operated in stealth mode until 2017 when it had near-production-ready vehicles to show. The company debuted its pickup truck and SUV models at the end of the following year.
In 2019, the company received a series of major investments, including a $700m funding round led by Amazon and $500m from Ford. Both companies have subsequently invested further in Rivian. Amazon currently holds a 18% stake in the company while Ford owns 11%. In May 2022, Ford revealed it had sold eight million Rivian shares.
In late 2019, the company signed a significant agreement with Amazon to design and manufacture its new fleet of EV delivery vans. Production is expected to reach 10,000 units in 2022 and 100,000 by 2030. The move forms part of Amazon’s plans to become carbon neutral by 2040.
By the end of 2021, Rivian began to deliver a small number of its electric pickup trucks to customers, garnering widespread praise.
Supply chain issues stall production
However, Rivian has had a series of issues to contend with in recent years. Production was severely affected in the wake of the Covid-19 pandemic, with vehicle deliveries originally intended for early 2020 pushed back to 2021. Chief executive officer RJ Scaringe commented: “Everything from facility construction to equipment installation to vehicle component supply (especially semiconductors) has been impacted by the pandemic.”
Russia’s war in Ukraine has also made it more difficult for Rivian to secure manufacturing materials. The company requires lithium for its vehicle batteries as well as semiconductor chips. The growing frustration around wait times has caused Rivian stocks to drop dramatically.
According to recent financial reports, the company’s operating losses have surged, going from $1bn in 2020 to $4.7bn in 2021. With this in mind, cost-effectiveness may be of greater importance when Rivian decides to open a European facility.
It should be noted that operating at a loss is not unusual within the EV industry, with Tesla taking 18 years to finally become profitable in 2020.
Rivian has stated that it doesn’t expect to turn a profit for the foreseeable future and is instead focused on ramping up its operations and capacity.
Rivian’s existing operations
Rivian currently employs more than 10,000 staff across several global locations.
In addition to its headquarters in California, the company operates multiple sites across the US. These include a development facility focused on electric power conversion in Carson, California; an R&D campus in Palo Alto’s Stanford Research Park; a vehicle prototyping location in Plymouth, Michigan; and a testing site in Wittman, Arizona.
Rivian bought its first manufacturing facility – a former Mitsubishi automobile plant – in Normal, Illinois, for $16m in 2017. The site has since undergone several expansions. Once the latest phase is complete, it will span more than 37,000m2 and produce 200,000 cars annually. The company currently employs more than 5,000 staff at the site.
Rivian is also currently building a second factory near Atlanta, Georgia, which will see the creation of 7,500 new jobs. Construction on the $5bn project is expected to begin in mid-2022, with production scheduled to begin in 2024. The site will manufacture up to 400,000 vehicles per year.
Outside of the US, Rivian runs two foreign branches – a small engineering office in Woking in the UK that focuses on advanced concepts, body and lighting, and a software development location in Vancouver, Canada.
Where should Rivian invest in Europe?
Investment Monitor has compiled an indicative data model to rank potential European countries for Rivian’s proposed European manufacturing plant. The model assesses a range of macroeconomic factors including costs, infrastructure, investment and production history, talent, productivity, R&D and innovation, tax, environmental and living factors, and geopolitical risk.
Germany ranks as the leading location, scoring 6.14 out of a possible ten. The European economic powerhouse performed well across several categories including innovation. Of all countries analysed, Germany’s R&D expenditure accounted for the largest share of its GDP. The country also led for the highest share of R&D personnel in the total active population. In addition, Germany recorded the highest number of automotive patents per capita in the five years to May 2022.
The country also performs well in the infrastructure category. Germany topped the 2020 edition of the Global Quality Infrastructure Index with a score of 99.5, ahead of 183 other economies. The country also scored well for road quality. Physical infrastructure is likely to be a key concern for Rivian as it looks to ship its Amazon delivery vans and other vehicles across Europe.
Germany also leads for car production, both in absolute and per capita terms. According to statistics from the International Organisation of Motor Vehicle Manufacturers, more than three million cars were produced in Germany in 2021, suggesting a highly developed industry cluster. However, it should also be noted that the German automotive industry is driven by a strong domestic market.
Additionally, if cost-effectiveness is of high importance to Rivian, Germany may not be the company’s optimum location as it will be the most expensive in terms of labour. Nonetheless, the quality of labour is very high.
Other countries rumoured to be in the running for the manufacturing plant rank high in our assessment. The UK ranks third, while Hungary and the Netherlands rank fourth and sixth, respectively. The UK scores 5.94 out of 10, with strengths in talent and environmental friendliness. The UK is also the least dependent on Russian fuels of the countries analysed. However, concerns over Brexit may hamper its investment attractiveness.
Hungary (5.69) scores well for its low corporation tax rate, car production and forecast GDP growth. Of all countries analysed, Hungary also received the second highest number of automotive FDI projects per capita in manufacturing and R&D between 2019 and 2021 (0.32 per 100,000 people). However, the country falters in the geopolitical risk category given its dependence on Russian fossil fuels. The Netherlands (5.33) excels in labour productivity, internet speeds and property rights.
Despite not being on Rivian’s list of rumoured countries under consideration, France and Spain also rank well. France ranks second overall (5.94), scoring well for its limited geopolitical risks, infrastructure and R&D. Spain places fifth (5.65), leading for its living environment and scoring well in the car production category.
It should be noted that there is not a huge disparity between all the assessed locations. There are only 1.9 points between Germany in first and Romania in tenth. Each country has competencies across all the metrics analysed.
Incentives may sway Rivian’s decision
Given that there is not a huge difference in scores between the ten locations assessed – and that each country has its own merits when it comes to automotive production – incentives could play a key role in Rivian’s decision-making. Incentive packages are very much project specific so it is impossible to know precisely which could sway Rivian’s decision, but we can look to previous projects as a guide.
As of December 2021, Rivian has received $1.8m in property tax breaks for its factory in Normal, Illinois. As part of an earlier agreement, the company was also eligible for a $1m grant from the Town of Normal in 2020 but declined so that the investment could be used within the local community.
Rivian is expected to receive a substantial incentives package following the opening of its manufacturing facility in Georgia in 2024. The company is expected to be awarded $1.5bn in state and local incentives and tax credits, provided the project meets its investment and job creation targets.
As for the company’s possible European location, Rivian was reportedly offered a bespoke incentive package by UK Prime Minister Boris Johnson when looking at a location in Bristol. The package was said to include the addition of a new link road to the M5 motorway, training facilities and the reintroduction of an old rail link at the site. Despite this, and Johnson’s promise to speed up the planning process, some outlets have reported that Rivian is ruling out the Bristol location, although no official announcement has been made from the company.
It is yet to be revealed what incentives the other rumoured European locations are offering, but we can review what other EV companies have been granted in the past. For instance, Tesla was offered $1.2bn in subsidies from the German government for deciding to open its gigafactory near Berlin, which the company later declined. Hungary also reportedly offered the company a series of R&D tax breaks when it considered opening a location there in 2017.
Local governments compete for coveted investment
Rivian’s new factory is expected to bring huge capital investment and job creation to the European location of its choice. Europe’s electric car market is expected to grow at a compound annual growth rate of more than 40% between 2021 and 2028 to reach $855bn. Therefore, this decision will send a significant message about the future of the automotive industry in the destination country.
From our analysis, Germany should be a top contender given its logistics and R&D strengths. The UK, Hungary and the Netherlands also have attractive propositions. Rivian will have to weigh up which factors – from quality and availability of talent, environmental impact, cost-effectiveness, financial incentives and fit with company culture – matter the most.