Robinson’s Take: Will consumers ever adopt electric cars?

Rivian, an electric vehicle (EV) manufacturer and automotive technology company headquartered in Irvine, California, was set to open a $5 billion plant in Morgan County, Georgia. That project has been put on hold. Construction of the facility was already underway, with about $200 million tax dollars spent. The official groundbreaking was slated for the beginning of this year.

Instead, Rivian founder and CEO, RJ Scaringe, announced in March that the company would first “focus its teams on the capital-efficient launch of R2,” its new midsize SUV currently in production in Illinois. Deciding to pause construction in Georgia will save Rivian $2.5 billion, allowing the company to push up their planned start of production of the R2 to 2026.

The multi-billion dollar Georgia plant would have created 7,500 onsite jobs and cranked out an estimated 400,000 vehicles annually. The state will continue construction of the facility in the hopes that, should Rivian decide to never build a plant in Morgan County, the land will still be prepared for another company to come in and do business in Georgia.

We spoke with Alok Saboo, associate professor of marketing at Georgia State University’s Robinson College of Business and director of its M.S. in Marketing program, about the closure of the Rivian plant, the costs and benefits for Georgians, and government efforts to change consumer attitudes about EVs.

[Note: this interview has been edited for clarity.]

What are your thoughts about the Rivian plant being closed?

The pause, or potential cancellation, of the Rivian plant, is indeed unfortunate for the Georgia economy. However, this development highlights an interesting dynamic in the electric vehicle market. While EVs are undoubtedly the future of transportation, like with any new technology, there was perhaps an over-exuberance in the initial enthusiasm for these new players. Tax incentives and the novelty factor drove excessive enthusiasm where valuations soared, even for companies that hadn't yet delivered a single vehicle.

As the EV market matures, we're seeing traditional automakers leverage their production expertise, distribution networks, service centers, and customer trust to enter this space successfully. This naturally begs the question of how many new EV manufacturers the market can sustain. Lucid, Rivian, and Fisker are examples of companies that achieved high valuations during the peak of EV hype but now face challenges ‒ with Fisker delisted from the New York Stock Exchange and on the brink of bankruptcy.

The broader phenomenon suggests we will likely see casualties as the market adjusts and realizes it cannot support an abundance of new entrants in this space. While unfortunate, this is a natural evolution as the EV market matures and consolidates around those with robust business models and technological and infrastructure advantages. Business fundamentals and practical considerations will ultimately drive long-term success.

What are the opportunity costs of the Rivian plant pausing construction and how could this impact Georgians?

The (potential) closure of the Rivian plant poses opportunity costs for Georgians. While we may obsess over the initial offer of $1.5 billion in incentives, it is important to note that these incentives were largely contingent on Rivian meeting specific requirements, including a $5 billion investment and creating 7,500 full-time jobs by 2028. In the long run, Georgians would have benefited from increased economic activity, tax revenues generated by employees, and a boost to the local economy.

In the short run, the absence of anticipated economic activity will hurt our economy. However, there are silver linings to be found in this situation. The investments made by the state in developing essential infrastructure, such as grading land, constructing roads, and improving highway exits, will make it more attractive for other businesses looking to establish a presence in Georgia.

Moreover, Rivian's initial decision to locate in Georgia and the state’s recent success attracting other major automotive investments, such as the Hyundai electric vehicle and battery complex near Savannah, underscores Georgia's potential in this industry. It sends a strong signal to other companies that the state is committed to fostering a business-friendly environment. Despite the setback with Rivian, Georgia remains an attractive destination for cutting-edge businesses, and similar opportunities may arise in the future.

We’re currently seeing more legislators push people towards electric vehicles. Why do you think there's this huge push now? What do you think is driving it?

The legislative push is largely driven by the desire to accelerate EV adoption and the benefits from the downstream effects, such as better jobs, clean air, etc. It's a bit of a chicken-and-egg scenario; consumers hesitate to buy electric cars due to a lack of charging infrastructure. However, businesses are less incentivized to invest in those stations if there aren't enough electric cars on the road. This is where government intervention can remove adoption barriers for consumers and businesses by providing the right incentives.

Electric vehicles offer numerous benefits, such as improved vehicle-to-vehicle communication, better resource utilization, and reduced environmental impact. However, their integration into the market requires some initial momentum. By offering incentives like HOV lane access or tax incentives [to both manufacturers and consumers], legislators hope to make electric cars more accessible and attractive. This approach has been successful with other technologies; governments often have a longer-term vision and can invest in projects that may not be immediately profitable but offer significant benefits down the line.

Do you think the lack of EV-friendly infrastructure is holding consumers back from making the switch? For example, the inability to efficiently charge EVs during that huge freeze in Texas in 2021.

Although things are rapidly improving, the lack of EV-friendly infrastructure is holding consumers back from fully embracing electric vehicles.

The 2021 freeze in Texas highlighted the challenges of EV charging during extreme weather events, underscoring the importance of reliable infrastructure. However, other other factors must be addressed, such as charging time, cost, and range anxiety. One of the significant drawbacks of EVs is the longer charging time compared to refueling a traditional gasoline car, which typically takes just a few minutes. Consumers expect convenience and efficiency when investing in modern technology, and in this regard, current electric cars often underperform their gasoline counterparts. Despite having a higher upfront price tag, EVs still have limitations that hurt widespread adoption.

In addition to improving battery and charging technology, automakers can explore innovative models such as "battery-as-a-service" (BaaS). Manufacturers could offer batteries as a subscription service, allowing owners to quickly swap out depleted batteries for fully charged ones. This could alleviate concerns about long charging times and extend the lifespan of electric vehicles.

The industry must address the psychological barrier regarding range anxiety. Consumers often view a range of 200 to 250 miles per charge as inadequate, especially compared to the convenience and speed of refueling a gas car. As technology advances, increasing the range to consistently surpass the 400-mile mark could be a turning point for broader consumer acceptance.

What are your thoughts on the new EPA rule limiting tailpipe emissions?

The new rules set by the EPA establish fleet-wide emission targets that auto manufacturers must adhere to encourage a transition towards cleaner vehicle production across their entire fleet. These regulations nudge manufacturers to develop cleaner options while offering flexibility in choosing the best technologies to meet these targets. Despite this push, it's important to clarify that the rules govern the vehicles manufacturers produce, not necessarily those sold. Thus, the impact on consumer behavior is indirect.

The hope is that by providing consumers with more environmentally friendly choices, the market will gradually shift towards these options. The thinking is that as EVs and hybrid vehicles become more available and mainstream, consumers will increasingly gravitate towards these options, knowing they are environmentally responsible and, with incentives, potentially cost-saving. However, whether and how quickly this influences the mix of cars on the roads depends partly on consumer acceptance and the broader contextual factors, such as infrastructure developments and EV education.