Rivian CEO RJ Scaringe warned that geopolitical shocks are driving ‘big shifts’ in raw material costs that ripple through tens of thousands of suppliers, as the Strait of Hormuz disruption adds fresh pressure to the global auto supply chain.
He spoke against the backdrop of mounting industry uncertainty after US and Israeli strikes on Iran on February 28 led to a near‑total halt of commercial shipping through the strategic Strait of Hormuz, a crucial artery for global energy and cargo flows.
Iran has since attacked ships and started to lay mines in the Strait, throughout the past two weeks.
The risks of using the Strait have raised insurance costs for cargo and ships, with several companies effectively refusing to provide coverage.
Additionally, rerouting via the Cape of Good Hope could add approximately 10 to 14 days to transit times between Asia and Europe or the Americas, according to Automotive Logistics.
The Middle East conflict compounds an already long list of logistics challenges for automakers, who are contending with high tariffs on material imports and vehicle exports, along with ongoing supply chain disruptions.
External Challenges
Rivian‘s CEO was questioned about the “most challenging technical hurdles” or “pockets of cost” in EV-specific engineering during an on-stage interview at the Fast Company Grill, held at the SXSW Festival in Austin.
The Chief Executive Officer said then that external challenges have been more prominent than any specific internal frustrations.
“I don’t know if there’s necessarily frustrating, there are no areas that are particularly uniquely frustrating in terms of […] let’s call it, the physics of the problem,” Scaringe stated.
On the other hand, “I think what’s happened is geopolitics and some of the trade challenges [which] are quite challenging to navigate, because we do have big shifts in the cost of a lot of the raw materials.”
The EV maker’s chief emphasized that supply chains in complex industries often involve thousands of suppliers, many of which the main company doesn’t communicate with directly.
“And so when things shock the system, it seems like, ‘oh, you should just be able to call all your suppliers and change your strategy,'” Scaringe hypothesized, while noting that “there’s just tens of thousands of companies, many of which you don’t have contracts with, nor have you ever even met with, that are just in this ecosystem.”
Mid-last year, the CEO admitted in an interview that Rivian had to dramatically rework its supply chain in the second quarter after abrupt disruptions to rare earth metals.
By then, he exemplified with the supply chain for its vehicle’s headlight alone.
Sourced from a US manufacturer, which assembles it, Scaringe said then that there were “about 20 suppliers into it. And those 20 suppliers, and each have about 10 to 15 suppliers. So there’s hundreds of companies involved with our headlight.”
Rivian assembles about 3,000 parts per vehicle, Scaringe noted, but “there’s actually more than 10x that in terms of discrete components that are going into the car, because we buy assemblies.”
Direct Sourcing
The Irvine-based automaker has been trying to lower its dependence on external suppliers and on identifying supply risks over the last few years.
“In some of the most challenging areas, like batteries, we now actually work directly with the mines,” he said. “So we skip all these layers and go straight to the mine. We source the material, and we drive it through our supply chain.”
According to Scaringe, Rivian now has mining experts working directly with the raw material.
“We have material processing experts for raw material for things that we, in fact, it’s not our business, but we need to understand that very closely,” he added.
While the EV maker is “working really hard to find domestic suppliers for everything that we can,” there are certain materials that just can’t be sourced locally.
When the interview host asked whether they might consider sourcing rare earth materials from the US — if mining were to take place — RJ Scaringe pointed out two likely obstacles: the lower concentration of rare earths in that region and the general public’s opposition to mining operations near their communities.
CFO Comments
Just days after the conflict began in the Middle East, Rivian’s Chief Financial Officer Claire McDonough was asked by CNBC about how she evaluated rising oil and gas prices’ impact on the company.
“I think it’s still too early to fully assess the impacts on the global supply chain,” the executive said, highlighting, however, that it’s “something we always carefully watch.”
The CFO noted that her team is “always monitoring for potential shocks in the system that could impact our broader supply base or bring inflation to some of our pricing as well.”
“But still too early at this point to say, obviously, the news is just a few days old,” she concluded.
Trade Scenario
Besides geopolitical issues, the auto industry is also dealing with the impact of tariffs — both country-wise and the 25% applied to all imported vehicles and auto parts.
“We’re in an advantageous situation. 100% of our manufacturing is done in the US,” McDonough stated, “and the majority of our supply chain is domestic or USMCA [United States-Mexico-Canada Agreement] compliant as well.”
While the USMCA has provided some relief for companies trading within North America, the upcoming renegotiation could signal changes, especially as trade relations between the United States and Canada have recently weakened.
Still, McDonough said, despite Rivian being “certainly affected by tariffs,” it is “at a much lesser degree than many of the other OEMs across the US.”
The CFO added that the EV maker has “been able to continue through a lot of commercial negotiations with the supply base, and engineering design efficiencies.”
The EV maker manufactures all its vehicles at a single plant in Normal, Illinois, and Bloomberg reported last April that it had stockpiled lithium iron phosphate battery cells from China’s Gotion High-Tech and moved a large amount of Samsung SDI battery inventory from South Korea to the US ahead of tariffs.
The R2 will use LG Energy Solution cells initially sourced from Korea before shifting to a factory in Arizona.
As first reported by EV earlier this year, the LiDAR sensors for the R2 and other upcoming Rivian models will be supplied by the Chinese firm RoboSense.
Latest News
Earlier this week, as the war shows no signs of easing, US President Donald Trump called on allies to help reopen the Strait of Hormuz.
On Monday, he warned NATO allies that they face a “very bad future” if they refuse to assist in securing the strait.
He also brought Beijing into the discussion, telling the Financial Times that “China should help too because China gets 90% of its oil from the Straits.”
A few hours later, amid trade talks in Paris, the President announced a delay of the summit with China’s Xi Jinping that had been scheduled for the coming weeks—a move that could affect the trade truce agreed to last year.
