Rivian Seems To Be Lacking The EV Luster

On Tuesday, shares of Rivian Automobile Inc RIVN fell as EV maker revealed late Monday it is looking to raise $1.3 billion in cash via a sale of convertible notes amid growing demand concerns. Its latest earnings report showed a mixed fourth quarter and concerning EV production outlook, with its EV peer Lucid Group Inc LCID also showing a reason for concern regarding the demand for electric vehicles.

A Weaker Than Expected Demand

For 2023, Rivian forecasted to produce 50,000 vehicles which would roughly be double last year’s amount, but still below analyst expectations that amounted to 60,000. This could be a sign that demand for its high-priced pickups and SUVs is falling short of its expectations, especially as its EV peer, Lucid, also guided lower-than-expected production in 2023 as it revealed it will be intensifying its marketing efforts, suggesting that both start-ups are seeing fewer orders than anticipated.

Rivian is focusing on ramping up production of its R1 truck and SUV as well as an electric delivery van it is building for its largest shareholder, the e-commerce titan Amazon.com Inc AMZN.

Mixed Results

Latest quarterly revenue came short of the estimated $742.4 million as it amounted to $663 million with supply chain issues continuing to plague production and shortages causing the loss of  multiple production days. These challenges will persist in 2023, but predictability will improve compared to last year. On a somewhat brighter note, when compared to last year’s quarter, revenue skyrocketed from $54 million as back then, Rivian’s output had just began.

Net loss for the quarter was $1.7 billion which is better than the $2.5 billion loss reported a year earlier.  2022’s adjusted loss before interest, taxes, depreciation and amortization amounted to nearly $5.2 billion, which was also narrower than the guided $5.4 billion loss back in November and therefore, adjusted loss per share of $1.73 topped the estimated $1.94.

Outlook

Rivian is expecting a positive gross profit in 2024. The latest results merely reflect difficult times that all EV start-ups are facing with slower-than-expected production and rising costs that made Rivian announce it will be trimming its workforce by 6% back in February. Rivian will continue working towards reducing material costs such as by simplifying its engineering and vehicle design. These efforts are well underway as capital expenditures during the fourth quarter amounted to $294 million which is significantly lower than the $455 million it had spent during last year’s comparable quarter.

A Simplified Cost Structure

CEO RJ Scaringe explained that the forthcoming R2 model will involve a simplified assembly and sourcing process which will result in a meaningfully lower cost structure. Although this isn’t a linear path, CFO Claire McDonough is expecting the results of these efforts to be seen as early as in the first quarter through lowered material costs.

It’s not an urgent cash crisis- yet!

At the end of 2022, Rivian had about $12.1 billion in cash which is down from $13.8 billion at the end of the third quarter and further down from June 30th $15.5 billion. In February, management stated that the company is able to fund its operations through 2025. By big selling convertible notes, it will fuel the development and launch of its upcoming smaller R2 series of vehicles which have now been postponed to 2026. Although efforts are being made to conserve cash, one cannot not notice that Rivian’s shares have lost more than 80% of their value since their public debut. There's no sugar-coating in a cash-lacking environment and therefore, EV startups, including Rivian, need to embrace for another tough year.