Rivian Automotive (RIVN) Stuck In Neutral As Mounting Losses Offset Reaffirm Of Production Target
2:25 pm Friday, August 12th, 2022
For upstart electric vehicle (EV) maker Rivian (RIVN), its current financial performance is mainly inconsequential for investors since the company is in the very early days of its growth curve. The fact that it edged past bottom-line expectations for Q2 has little relevance compared to its outlook, particularly as it relates to production and profitability improvements. In that regard, the news was mixed for RIVN as the company reaffirmed its FY22 production target of 25K vehicles but lowered its adjusted EBITDA guidance to ($5.450) bln from ($4.750) bln.
The stock has struggled to gain much traction today despite reaffirming that production target and reporting an 8,000 sequential increase in R1 preorders to 98,000. There are a few possible reasons why RIVN is stuck in neutral.
In order to reach its goal of 25K vehicles produced this year, RIVN will need to average about 9,500 vehicles produced in Q3 and Q4. For a reference point, the company produced 4,401 vehicles in Q1. Given that RIVN acknowledged that supply chain constraints are still a limiting factor for production, there’s likely some skepticism among investors that it will reach its target.
It’s unsettling to see the company’s Q2 adjusted EBITDA loss balloon to ($1.305) bln from ($559) mln in the year-earlier period, causing it to lower its guidance. Along with costs associated with the ramp up at its Normal, IL plant, raw material inflation and expedited freight costs are battering the company.
There also may be some concern revolving around tax credit changes that are included in the Inflation Reduction Act. Specifically, RIVN’s vehicles won’t qualify for EV tax credits due to lofty sticker prices that exceed $80K.
On the positive side, RIVN’s Electric Delivery Vehicles (EDVs) may qualify for up to $40K in incentives under the new law. That would be good news for Amazon (AMZN), which ordered 100K EDVs and recently announced that it will begin rolling out these trucks across 100 cities by the end of the year.
While there’s still plenty of risks and uncertainties surrounding RIVN, one item that investors can feel confident about is demand. Despite raising prices by 17% in March, the preorder rate actually accelerated in Q2 versus Q1. It was also encouraging to hear that RIVN may be able to add a second shift on the assembly line towards the end of Q3. If that plan comes to fruition, then attaining that 25K production target becomes much more likely. Overall, we expect that RIVN will ultimately emerge as a winner in an EV market that’s becoming fiercely competitive, but the bumps in the road that it encountered in Q2 likely won’t be the last ones on its journey.
