Rivian’s Narrative vs Reality
$Rivian Automotive, Inc.(RIVN)$ makes trucks and SUVs. They’re very stylish. They appear to be high quality (in limited history). Rivian even makes software that $Volkswagen AG(VWAPY)$ is going to use in upcoming EVs.
But Rivian is an auto company.
It has the same constraints and capital requirements as companies like $Ford(F)$ and $General Motors(GM)$ , yet investors seem to be enamored by the potential of the upcoming R2 launch and an autonomous driving software that’s no more capable than a dozen other companies can offer.
But what’s most shocking about Rivian is how horribly the company has executed its business since going public. The company went public in 2021, shortly after selling its first vehicle, and while an expected ramp was slow, the vision was to sell over 200,000 vehicles in relatively short order.
Over the course of fiscal year 2022, we plan to remain focused on ramping up production of both the R1 and RCV lines in Normal, as well as investing in our technology and product portfolio for future growth. We believe that throughout 2022, the supply chain will be a fundamental limiting factor in our total output for the Normal Factory and that our manufacturing equipment and processes would have the ability to produce enough vehicles to deliver over 50,000 vehicles across our R1 and RCV platforms in 2022 if we were not constrained by our supply chain. Our confidence comes from the demonstrated performance of our processes and equipment which is in line with our expectations.
Rivian’s Q4 2021 Shareholder Letter on February 1, 2022
OK, 50,000 units of capacity in 2022 once the supply chain gets sorted out. But that was just the start. The plant Rivian bought from Mitsubishi Motors had the capacity to build over 200,000 vehicles annually.
We plan to continue investing in our business throughout 2022 and therefore expect an increase in capital expenditures as compared to 2021. Capital expenditures are expected to be $2,600 million, driven by additional investment in our Normal Factory to expand the total capacity to 200,000 units annually.
Rivian’s Q4 2021 Shareholder Letter on February 1, 2022
Getting to that capacity in 2022 would have been asking a lot. But the company’s capex was “driven by” investments in expanding capacity toward 200,000 units each year.
Where does Rivian stand more than three years later?
There are problems on both the supply and demand sides.
Lowered Expectations
As of March 8, 2022, Rivian indicated to investors that it had 183,000 units of demand between R1 pre-orders and the 100,000 EDVs Amazon had ordered.
And look at the “total planned annual capacity” number in key highlights. That’s 200,000 units of capacity in Normal, Illinois, and 400,000 units in Georgia. There’s no timeline for 600,000 units, but they gave these numbers more than three and a half years ago!!!
In more than three years of production, the company has only produced 152,650 vehicles, and it isn’t running at full capacity today.
The demand Rivian indicated in 2022 didn’t really exist.
And Rivian’s supply has been constrained by its own mistakes.
This is something we see over and over again with Rivian’s guidance. In 2022, the company expected to produce 25,000 vehicles. It only made 24,337.
2023 was better with 57,232 vehicles produced.
But here’s where things change. In 2024, Rivian said it would produce 57,000 vehicles, only to make 49,476.
And 2025 production was expected to be down from there (ahem, demand problem).
Only to be lowered to just 40,000 to 46,000 vehicles recently.
Rivian has been public for nearly four years and is still producing less than 50,000 vehicles per year. That’s bad for a manufacturing company, no matter how you cut it.
Execution Problem: Redesigning R1
Some of the reduction in production will be blamed on plant upgrades to run more efficiently and an updated R1 design.
But here’s the question: Why does Rivian need to upgrade a brand-new vehicle and a brand-new production line?!?
That’s not normal!
It’s poor execution!
Execution Problem: Where’s EDV?
The EDV was supposed to be a floor of demand for Rivian, so what’s the status?
$Amazon.com(AMZN)$ recently said they have 25,000 EDVs on the road. And they still expect 100,000 EDVs by the end of 2030.
But this isn’t a high-volume vehicle. It hasn’t taken over Amazon’s delivery network. Despite being released from an exclusive deal with Amazon, Rivian hasn’t made inroads with other customers.
There’s a theme here.
Either there’s weak demand.
Or there’s poor execution in delivering vehicles.
OR IT’S BOTH!
R2 to the Rescue?
And so the story goes that Rivian will update some of its equipment in Normal to accommodate the R2, a 2-row SUV that will sell for as little as $45,000.
The market is optimistic.
But can Rivian execute on R2 in a way it couldn’t on R1? And if it does, what’s the upside?
Is there demand for ~500,000 R2s, or about as many vehicles as Jeep sells overall in a year?
And if there is, can Rivian make enough money on each vehicle to make a profit?
Rivian is currently spending $3.4 billion per year on operating expenses.
To get to profitability, Rivian needs to generate enough gross profit to cover its operating expenses (we’ll look past servicing debt for a moment). On a per-vehicle basis, that means making the following gross profit per vehicle at different capacity levels.
Remember, Rivian would have at best 215,000 units of capacity annually sometime in the next three years. Georgia is still in the earth-moving phase, and Rivian doesn’t have the money to build that plant. A $6.6 billion government loan should cover construction, but will this administration follow through on a loan given out by the previous administration?
And even if Rivian has all the demand in the world and funding to build the Georgia plant, will the company execute on the timeline it needs to and at the margins needed to make a profit?
History says, no!
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