Alexis Rivas, CEO of Cover, on building the Tesla for homebuilding

Alexis Rivas is the CEO and co-founder of Cover. We talked to Alexis to learn more about the inefficiencies in the modern homebuilding process and how Cover is applying the factory and assembly line model to housing.

Can you start off by talking a little about the problem you're solving with Cover?

I was interested in home-building and construction from a very young age. I did my internships in this field and helped my grandparents build their home, too. That’s how I saw a lot of the process and the problems upfront, early-on in my career. 

What I also noticed was that most people wanted similar things out of their homes. The specific layout might be different, some finishes too, but at the end of the day, there had to be some bedrooms, bathrooms, nice windows for natural light—in short, a well-built home that would function well. It's pretty basic stuff, not the crazy architect homes that you see in movies.

For 99.9% of people, homes are fairly standardized products. But I realized that building them was extremely painful. There were delays and significant unpredictability. You could go into the project thinking it'd be a $400,000 project and it could end up being $800,000. 

On top of that, the quality would be highly uncertain. You wouldn't really know what you were going to get when you went into it. I saw that and wondered if there was a better way to go about it. What if homes were built like every other product in our lives, in a factory, just like cars? Or our electronics? Or even clothes? Why aren't homes built that way? 

It turns out that wasn’t a new idea. I worked for a prefab home company thinking that they had the solution to this problem. However, what I learnt was, while they were building homes in the factory, the process was the same as conventional construction—they were still using two-by-fours, hammers and nails, and drywall. They weren't really taking advantage of the efficiency and the throughput that you could get out of factory manufacturing when you designed the product to be geared towards manufacturing. 

For example, a car is designed for the specific way that it's going to be built. Those two things come hand-in-hand. Now, that process hasn't been applied to building homes. That’s when it clicked for me. 

I realized there’s a huge opportunity to solve this massive problem and make really high-quality homes available to a lot more people by enhancing the quality and lowering the cost. That's when my co-founder, Jemuel, and I started discussing and working on this problem. 

Why haven’t people previously applied this kind of construction model to the problem of building prefab homes?

There are a lot of reasons for this. First, it's the hardest way to solve this problem. Going about it our way is very tough.

If you look at the amount of effort it takes to engineer a conventional home with the standardized well-understood process, let's call it 50 hours of work, for example, then, the amount of time it takes to engineer that home with a ground-up redesign is not even close to ten times the amount of work. In fact, it's over 100 times the amount of work required. And you need a completely different kind of expertise that is extremely rare.

It isn’t easy to just bring in people from the conventional construction industry to build homes in this way. If you want to build homes the way cars are built, then, you actually need people that know how to build cars. That’s why, many on our team come from companies such as, Tesla, SpaceX, Honda, etc., where they’ve built products in a manufacturing environment. 

Unlike a car, every single home cannot be exactly the same. In cars like the Toyota Prius, you might change a color, perhaps add some trims, but the shape is the same, and they build hundreds of thousands of those. 

However, the properties of homes are unique. The direction of the driveway, how it enters the lot, the dimensions of the lot itself, the zoning, setbacks, the height requirements, the specific family’s needs—two bedrooms, three, sometimes, all of different configurations—are crucial to consider. So, unlike a car, you have to enable some degree of mass customization. 

One of the big enablers for what we're doing, is the advancement of software. We're using software for mass customization of homes in a way that is scalable. That software takes care of the entire gamut of processes from customer requirements to instructions that go to the factory floor, to a machine, including the permitting, engineering, design, information management, and material buying. Software ensures unique homes coming off the production line without a ton of manual work and manual management. Such homes couldn’t have been built even 20 years ago.

On the hardware side, with reference to the physical components that make up the house, how do you unlock that kind of mass customizability? What is the atomic unit to a Cover house?

You need to have that underlying unit, else you aren’t building a product. It's a service. And services don't really scale, even with software. 

We make these building blocks — standardized sets of wall, floor, ceiling, and window panels—that connect in a standardized way. This limited set of pre-designed, pre-engineered panels can be used to create an infinite number of different floor plans. While it’s limited customization, it's extremely versatile. This is comparable to what you would get with conventional construction in terms of layout versatility.

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Can you give us some insight into conventional house building and why so many projects end up delayed or over budget?

That was the problem when I was entering the industry. It was puzzling and frustrating to see it from both sides—when I worked with my grandparents on the client side, building their home and then, when I worked with the architects and general contractors. It's not like there was one party that was just really bad. In fact, it was a systematic issue with how conventional construction was set and the normal way of building homes. 

Imagine if your car was built the way homes are—by a team of people who’ve never worked together before but who show up on your driveway one day. They start assembling a slightly custom but pretty generic car for you, out of a million different pieces, all of which have been shipped separately and arrive at different times. Once the team’s done, it moves to the next driveway and repeats the process. 

Your car would probably cost $500,000 and it would be extremely time consuming, expensive, and outdated. The quality would also be uncertain given these people have never worked together before. While it sounds absurd, that’s how homes are made. 

There’s a general contractor who bids out your specific home to an army of subcontractors so you get a painter who might never have worked with that electrician, who may have never worked with that plumber, or that framer. There's a ton of coordination work involved, uncertainty galore. Your architect or engineer, when drawing up the floor plans, are not marking detail there at the level required to ensure coordination, so your plumber doesn’t know where to cut a hole in the stack, or where the electrical wiring is going to go exactly. All of that is figured out on-the-fly. No wonder you have things clashing with each other, a whole lot of conditions that are not predicted in advance, and that's where the time gets sucked up.

You indicated cars would potentially be 10X what they cost now, roughly, if they were built the way houses are. Do you imagine the reverse happening to housing where it becomes as cheap as cars eventually, where costs can dramatically come down?

That's exactly what we're working on. We want to make the kind of quality that you normally see today, in multimillion dollar mansions. We aim to make high quality homes available to everyone for less than even the mass produced homes, the $300,000 home communities being built. That's our goal. It's super doable with mass production.

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Can you share any numbers you have today around product market fit?

I'll share this—we have one person on our team who spends a quarter of their time on sales, at most. That’s it. We've always had a backlog of orders and we've been ramping to fulfill. We've delivered a few dozen homes in California. So yes, we’re very focused on our market. We get emails and phone calls every single day from all over the country and the world asking for our product. There's a massive shortage of homes and people love the product. It's funny, because there's a lot of products where product market fit is a real question.

We’ve found, with homes, if you build a better home for less cost than what it would take to build that same home using other methods, everyone's just going to want your product. It's not like we're inventing a new social network where it's uncertain what people are going to like to use. People need homes and if you build them a good one, they’ll choose you. 

Our problem is not whether there’s a market for this. It's how do you fulfill the demand in a way that scales and efficiently? That's the hard problem.

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After 2008, some of the traditional home builders got scared to ramp-up production too fast in case things went downhill again. How do you feel about scaling up or down with Cover to meet fluctuating demand?

Construction is historically, cyclical, and it’ll continue to be so. Having said that, if you have a solution to construction that's ten times better than the conventional method, even during that down cycle, you're still going to be growing massively. That will be a problem that we will have to worry about and plan for once we're making a few hundred thousand homes per year, for instance. 

Worst case scenario, if the 2008 recession repeated itself—the number of houses being built had halved, then, to 500,000 per year—that’d mean 500,000 homes are still being built. 

If you have something that's ten times better, there will still be excess demand for your product. When we're building a significant percentage of that is when we must start planning for that and mitigating it. There are a lot of problems to solve before we get there.

Staying on the production side and carrying forward the car analogy, Tesla’s putting up new factories to build their batteries. What kind of factory footprint is required for Cover? When does that become the rate limiter on how well you can meet demand?

There're a few things to be noted when you're undertaking production. 

One is to ensure you’re not automating before your product is ready and your processes are stable. What you want to do is validate production with fairly manual processes before you scale. This will take up more floor space, depending on the process. I may be dancing around the question, but it's a complex question to answer. 

In terms of the floor area, let me give you some context—We're moving into an 80,000 square foot space. That space is going to have a 10,000 square foot R&D facility where we develop the next generation product. It's not a lot of space at the end of day, and you can get a meaningful lot of homes for that. 

Now, compared to conventional ways of prefabricating homes, a lot of prefab home companies build container-sized rooms that are fully done from the factory but to lift and transport which, you then, need massive cranes and oversized trucks. That factory takes up a lot more space—at least five times more than a factory that we would need. That's because you're moving these entire room-sized pieces through the factory. 

Our pieces can be flat-packed, stacked—an entire home on a couple of trucks! In our factory, you can stack those on racks all the way to the ceiling. So, the way that we're building homes with panels offers significant efficiency advantages over most ways of building homes.

What’s your take on the changing rules around ADUs to promote more housing for people? California’s made some big changes. How supportive has the regulatory landscape been for you? Do you see it potentially changing in the future?

First off, state and local governments are beginning to realize that housing is a real problem that needs to be solved, else economies and citizens suffer. The ADU laws are really good ways of creating more housing in a way that benefits everyone. In this context, you hear this term NIMBY (Not In My Back Yard). 

The cool thing about ADUs is that it actually encourages people to build directly in their backyard and as a result, benefit financially. You're adding value to your property and you can generate income that can help pay down your mortgage. Usually, in a lot of neighborhoods, depending on the cost of the ADU, the income generated is much more than the cost of financing the ADU. That’s because the land is already paid for. So it's a really good way to create more housing in a way that homeowners actually directly benefit from, financially. It's one of those win-win situations.  

We've seen that since the first law was introduced in 2017 to the beginning of this year, the regulations have become even more streamlined—in California—making it easier to build these. We’re nowhere near solving the housing crisis so, I expect that to continue.  

The reason we're building backyard homes is because there’s a big market for it. Plus it’s also a really good way to start. Backyard homes are the minimum viable product. They have kitchens, bathrooms, and are full homes. You can learn a lot more by building ten 500 square foot backyard homes than you can by building two full-sized 2000 square foot homes. You can iterate and improve on the product with each of those. That's why we're starting off with backyard homes rather than full-sized homes or multifamily.

In addition to the COVID housing crunch, there’s a huge labor crunch. Do you have a take on that part of the market—the maintenance and ongoing upgrade side of the equation for owning a house?

Maintenance is certainly part of owning any physical product, especially something as big and complex as a home. Our goal though, is from an engineering standpoint, to make it as easy as possible to maintain these homes. 

As an example, with conventional homes, if something goes wrong, or if you want to add new plumbing or new electrical fixtures, you'd have to break open your walls. That’s massive processing—you have to patch it up, drywall, sand it down and then paint it. With our homes, you can actually pop-off the ceiling or wall panels like you would, the body panel of a car. Then, you can access everything behind it and maintain it, easily. We're making it easier to maintain. 

Our business model isn't about maintaining these homes; it's selling them. There's no shortage of new homes to be built. We want to focus on building new homes and making the maintenance as easy and low cost for the homeowners as possible.

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How are you different from some of the other players in the space, such as Katerra and Abodu? What is Cover's position relative to these companies?

They are two very different companies.

Katerra went under. Their approach was very different from the start. It was practically the opposite of ours. They  started really big by building all over the place with multifamily and entire retirement communities and commercial spaces, residential spaces, and factories across the world, in multiple continents. They tried to scale before they had a truly great product and process. They underestimated the extent of the technical and engineering challenge this could be. What happened then, was they couldn't deliver on their promises—speed, costs, margins—so ultimately, they did not succeed. If you look at a world where, let's say Katerra succeeded, then, the actual buildings that they made, wouldn’t look all that different from conventional construction. You can't really tell the difference. The process they tried to adopt was different but the end result was pretty general. 

We're taking a completely opposite approach. Today, we're only building backyard homes in Los Angeles city, which is a very tiny fraction of the massive market. We have the opportunity to focus and iterate on developing and doing one thing extremely well. Once we have that process tight, we’ll scale fast. Ours is a product-first approach.

Abodu, on the other hand, builds homes in a factory like conventional construction companies do. So, they're not really different from any of the other prefab companies that have existed for years. However, they are focused on the ADU market, which is good. But they're not really different from any of the others.  

You mentioned you’ve been recruiting engineers from places such as Tesla. What has your recruiting pitch looked like to get folks to join?

For us, however, our homes are products. They're distinctive. You look at it and you know it’s a Cover home. We are a product company. That's another major difference.

Recruiting is always hard, but for anyone that's gone through the process of searching for, building, or even renovating a home, it's very clear that there's a real problem here in the U.S. And it's a very exciting problem to solve. 

Homes are the products that people spend the most time in and with, in their lives. People might spend, in cases of lengthy commutes, four hours a day in cars, at most. But with a home, they’ll be spending 12 hours at least. So it's a hugely impactful product. 

What we're giving people is the opportunity to have a significant impact on an industry that hasn't changed in 100 years. We’re working to make incredible and thoughtfully designed homes available to everyone and that mission resonates with a lot of engineers we’ve hired.

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It’s interesting that one of your recent investors was the largest home construction company in the U.S. How do you feel about partnering with traditional home construction companies? What, if anything, was the vision they shared with Cover?

If you look at a lot of these construction companies, they partner with local subcontractors—framers, roofers, plumbers, electricians—to build their homes. If you talk to them, they’ll state, their biggest challenge is to fulfill the demand that's out there. That’s because it’s tough finding high quality, skilled labor to build these homes. There's a huge shortage of skilled construction workers and this worsened in 2008 because a lot of people that were maybe close to retiring, retired once the recession hit. And they never got back into the industry after it picked back up. During COVID, the situation repeated itself and was worse, so a lot of people just left the industry early and didn't come back. This problem isn’t getting better. 

We solve that problem by moving a lot of the complexity from the construction site to the factory where you could work with engineering, manufacturing, develop tooling and automation to streamline the process so that a crew of ten people could build 100 homes a year instead of just ten. 

Tesla has this vision where once we have full self-driving, Teslas could autonomously act as taxis when their owners don't need them. Do you imagine doing something similar with Cover in the future when you have built out more ADUs or houses—building a kind of autonomous Airbnb-like platform?

That’s how you increase the number of homes they can build. We saw this huge, core problem of theirs—an aging and shrinking workforce and an ever worsening situation—and with our approach were able to help them build more homes and grow.

Yes, for sure, and the possibilities for what you can do with the home that's built from the ground up, with modern technology and integrated with smart home, are endless. When I say smart home, I mean true integrated smart home, not add-on smart home. Everything about how the home is built is intelligent from the start—from how it’s maintained to the end user experience. That's a good example. That's already doable with blocks and by integrating them for a better experience. 

With Cover, the one neat thing is that every Cover can be unique—layout-wise, or in terms of finish options chosen but as a product, they’re instantly familiar. It’s like when you go from using an iPhone to an iPad or a Mac, a lot of the interfaces are similar. 

Looking at the smart home space, how do you assess the progresss that's been made so far? Are we still in the early stages?

So, someone who's stayed in a Cover, in a completely different city or country, might walk into another Cover that's twice the size or with a different look and feel, yet be instantly familiar with a lot of the core features—the placement of the light switches, what they feel like, the door handle or even the locks. The familiarity will emerge because it’s a standardized system. That's pretty cool. You're taking a home and making it a product.

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It's still the super early stages. If you look at the smart home tech, today, you pretty much need to be a software engineer to set it up to be truly smart and actually be easier to use in a conventional dumb home. Most smart homes are actually pretty dumb, so I wouldn’t necessarily call them smart homes. The reason for that is, there's a lot of intelligence and logic that needs to go into actually making it smart and work for you. You need to know you can't slap a device anywhere and expect it to be smart. There's context that's needed. And the best way to build that context into it is to just build it right when you're actually designing the home. 

A concrete example would be, where to put your thermostat. If you're building a home from the ground up, you could put your thermostat as an interface anywhere it's convenient and then, place the sensors in multiple locations, in multiple rooms, where they’d measure temperature, humidity, and maybe, even occupancy for efficiency’s sake. So, if you're building that from the start, it doesn't have to be this protrusive, ugly thing sticking on the wall. It can be very sleek and barely noticeable. That’s much more difficult to do after the fact. 

Now, there's a ton of opportunity for making a truly smart home when you're building it from the ground up. That is how we're approaching the problem. We're still very early on in our smart home development, we’re still building up the software and the hardware teams for that.

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