Is Rivian Still Spending Billions Now to Make Billions Later?

Rivian lost an estimated $33,000 on every pickup it sold in the second quarter of this year, which is kind of impressive considering the cheapest model it sells still goes for a sizable $73,000. Considering its lofty initial public offering (IPO) and enviable product specifications, some are wondering why the company isn’t in better shape.

Though Rivian is hardly alone in selling cash-hemorrhaging electric pickups and SUVs. Ford is on track to lose $4.5 billion on EVs by year's end and is supposed to be underwater by more than $32,000 per average all-electric transaction. Frankly, it doesn’t look like any brand other than Tesla has managed to find a way to make volume electrification work in its favor.

A recent report from The Wall Street Journal attempted to suss out exactly what’s been happening with Rivian and it serves as a window into why electrification has been a problem for manufacturers generally. We’ve seen countless EV startups suddenly appear with murky financial support, receive loads of cash funneled in via IPOs or reverse mergers, and then recede into obscurity as founder members sell off their shares before the brand’s juicy market valuation plummets.

Rivian didn’t look to be one of those companies, however. While production rates have been consistently under target, they’ve also continued improving. You might even see Rivian products cruising down the neighborhood, which is more than we can say for brands like Faraday Future and Lordstown Motors.

In fact, the brand has technically managed to improve its situation dramatically in a relatively short amount of time. Rivian’s gross profit per vehicle averaged a loss of over $400,000 through most of 2022. But it’s managed to get that figure down to a negative $33,000 in the most recent quarter for 2023. But that still means the company has burned through over half of the $18 billion it has managed to stockpile.

Some of that was unavoidable. Production stalls during the pandemic basically obliterated supply chains and guaranteed that every automaker under the sun would endure volume shortfalls. The issue was made worse by consumers being out of work and inflationary pressures making expensive models less attainable. We can’t really blame Rivian for that. However, the brand has also failed to live up to the hype that drove up its IPO and subsequent market valuation.

From WSJ:

As of the end of September, Rivian had only built a total of around 65,000 vehicles, a fraction of what other car companies manufacture at a single U.S. factory in a year. Even with output increasing, Rivian’s factory in Normal, Ill., is operating at less than one-third of its build capacity. It aims to produce 52,000 vehicles this year.

Rivian’s share price is down around 70 [percent] from its IPO price of $78.

Founder and Chief Executive RJ Scaringe is rushing to slash expenses and slim down operations. He has said he is focused on reducing how much Rivian pays suppliers for parts, simplifying some aspects of the design and boosting production to move closer to profitability. 

Losses have narrowed as Rivian produces more vehicles, but its cash burn continued at over $1 billion a quarter at the end of June.

Scaringe said the billions of dollars spent so far were a necessary part of the company’s growth. Company executives say Rivian aims to make a gross profit on its vehicles by the end of 2024.

“We’re competing to build something that’s truly better than all the alternatives, and to try to do that on a limited budget would be detrimental to us achieving our mission,” Scaringe explained.

It’s no secret that starting an automotive company from scratch is exceedingly difficult. Automakers have been consolidating for decades and government regulations make it exceptionally tough for any new nameplates to dive into the industrial fray. But Rivian has made it through the toughest parts of the process and seems like it only needs to address volume concerns.

Is that enough to condemn the brand as a failure? It’s certainly not a good sign. But when considering how tough it’s been for legacy manufacturers to convert their own EV lineups into gold (something executives seemed to think was a guarantee just a few years ago) it’s hard to dump on Rivian without feeling a little guilty.

Scaringe also said he was trying to deliver the best all-electric vehicles in the world — products that would not only be functional and rugged working vehicles but also be attractive, luxurious, and capable enough to embarrass some of the world’s best performance cars. While they are still subject to the shortcomings of all modern electric vehicles, Rivian seems to have achieved those goals with the R1T and R1S (with EDV vans for Amazon being their own thing).

But it’s still going to need to cut production costs and says that’s been its primary focus of late. Former employees have said management has asked engineers to cut up to $40,000 (per vehicle) in terms of parts and production expenses.

That’s a pretty massive request to make. However, some headway has already been made. The CEO has said Rivian is presently renegotiating supplier contracts made above-market rates years earlier. It’s also been streamlining some vehicle options that are quirky and unique but don’t really make the vehicle substantially better. Theoretically, it can also re-add those options at a later date — perhaps at prices that will pad its bottom line.

Increasing production would also help with profitability. Less downtime means fewer dollars wasted, provided that the market is ready to scoop up every model manufactured. The same could be said for raising prices. But that may actually be what’s hurting the brand most.

Rivian has already increased pricing for several configurations at a time when Tesla has been doing the opposite and world’s largest automakers are trying to fill out their lineup with larger EVs. The public appetite for nearly six-figure electrics probably cannot sustain what the industry is doing right now. We saw something similar happen during the Great Depression. Leading up to the 1930s, there was a slew of manufacturers trying to push automotive technology to the absolute limit, resulting in a waterfall of hyper-expensive luxury vehicles regular people couldn’t hope to afford.

Companies that managed to pivot toward mass production and affordable volume models persisted. But those that did not either went under or were purchased by rivals with deeper pockets. While there are too many differences for us to witness a one-to-one repeat of what happened a century ago, the stage seems to be set for something similar to take place. We may even be in the midst of that now.

[Images: Rivian]

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