Analysis of Rivian’s 2023 Results

Recently, the two COVID EV darlings, Lucid and Rivian reported their 2023 full year results.  I covered Lucid (Analysis of Lucid’s 2023 Results) a couple of weeks ago which now brings us to Rivian.  Both Lucid & Rivian IPO’ed in 2021 and have been developing Electric Vehicles since the mid 2010’s.  Lucid stock peaked at $55.21 in November 2021 and is currently trading at $3.00 per share.  Over the same period, Rivian stock has crashed from a high of $129.95 to $12.69 today.  Both have the very rare honor of making AML look like a better investment over the same period. The question is why, what has happened, is there any hope for the future. Before getting into the results, there are two quotes regarding Rivian that recently caught my attention.  The first is from Rivian’s website:

 

An investment for generations to come.

At Rivian, we’re committed to showing that a successful business can also be good for the planet.

 

Which I thought showed a complete detachment from reality.  Any business that burns through over $12 billion in cash over the last 2 years is far from successful by any definition I am used to using.  In terms of it being an investment for generations to come, given the stock’s performance over the last several years, it might be several generations before it gets back to where it IPOed.

 

And the second comes from one of Amber Heard’s ex-boyfriends:

 

Tesla CEO Elon Musk said last month that Rivian’s product design was “not bad,” but added, “the actual hard part of making a car company work is achieving volume production with positive cash flow.” He suggested his rival would go bankrupt in six quarters without a drastic change, saying it needed to “cut costs massively.”

 

I believe this is both spot on and what I would be looking for when going through both the earnings call transcript and financials.

Earnings Call

Given that over the last 3 years, Rivian has burnt through $16.9 billion in cash while delivering 71,374 vehicles (that’s $240k per vehicle delivered) I opened the transcript of Rivian’s earning call expecting to hear the CEO, RJ Scaringe, talking about a company in crisis that’s taking urgent steps to turnaround the business, drive sales, and stop the cash burn.  To start off Scaringe did exactly that.  In his opening statement, he started off by announcing that Rivian was reducing its salaried headcount by 10%. That was followed by:

 

Major goal with the launch of R1 was to build a brand that deeply resonates with customers. Beyond our active owner groups and the R1S being the top-selling EV in the US priced over $70,000, in owner satisfaction survey conducted by Consumer Reports, showed Rivian as the number one automotive brand with the highest likelihood for customers to purchase again.

 

We intend to harness this brand strength as we launch R2, which we will be unveiling on March 7th. R2 represents the essence of our brand while targeting the significant mid-sized SUV segment, a massive market with limited compelling EV options beyond Tesla. R2 has been developed with vertically-integrated propulsion platforms, electronics and software to create an incredible user experience.

 

Our team is laser-focused on the factors within our control that will drive Rivian’s long-term value. These include driving cost-efficiency, optimizing our production and deliveries, investing in differentiating technologies, enhancing the Rivian customer experience and maintaining a strong balance sheet.

 

The progress we’ve made on ramping production and driving greater cost efficiency was significant in 2023. During the full year, we more than doubled production and deliveries and exceeded our initial production guidance by more than 7,000 vehicles.

 

This feels quite long on corporate speak and platitudes. My net takeaway on all this:

 

  • Rivian is #1 in the smallest premium segment of the market
  • Rivian believes they are laser focused on building the Rivian brand
  • Rivian is betting very heavily on the R2 and needs it to be a major success.
  • Costs need to continue to come down substantially before it is a sustainable business.
  • Rivian is focused on continuing to ramp up production volumes.

 

Question is, do the numbers back up the story?

According to Rivian, these are their 2023 highlights:

 

  • 167% increase in revenue in 2023 as compared to 2022
  • ~$81k gross profit per vehicle improvement Q4’23 compared to Q4’22
  • Launched leasing on R1
  • Exceeded all aspects of 2023 guidance.
  • Top selling electric vehicle over $70k in the United States for 2023
  • Launched Standard Range R1 variants starting at $69,900 in early 2024

 

Rivians’s highlights do focus on top line growth but are noticeably lacking on any cash flow or profitability metrics.  Looking into the numbers:

 

  • Full Year Key Results: The key numbers for Rivian in 2023 were 57,232 cars produced, (up 135% vs. 2022), cars delivered 50,122 (up 147% vs. 2022). Net Revenues of $4,434 million (167% vs. 2022), and net loss of $5,432 million (vs. loss of $6,748 million in 2022).  Selling, Administrative, and General (SG&A) expenses were down 4% in 2023 to $1,714 million.  Free Cash Flow in 2023 was negative $5,892 million vs. a negative $6,421 million in 2022.  Net loss per car delivered dropped in 2023 to $108k from $332k in 2022.  In the earnings call, Scaringe stated: “looking forward to continue to make progress on our drive towards profitability as a business.” Certainly, when you look at the key 2023 numbers, Rivian made solid progress across the board.  The problem is even after that progress, the Free Cash Flow and Let Loss numbers are still quite horrific.   

 

  • Financial Viability: Cash and short-term investments were $7.9 billion at year end 2023, down $4.2 billion vs. year end 2022. Long term debt is currently $4.4 billion, up $3.2 billion vs. prior year.  At its cash burn rate over the last 2 years, Rivian would appear to currently have enough liquidity to cover its needs into early 2025.  However, Rivian is projecting Capex of $1.75 billion in 2024, which is up $730 million vs. 2023.  Rivian’s net cash used in operating activities decreased $186 million in 2023 vs. 2022 to $1,026 million.  A similar decrease in 2024 will not even remotely cover the increase in Capex.  How they expect to cover the increase in Capex while not increasing the cash burn is unclear. If Lucid is unable to do this, they will run out of cash in Q4 2024 without a further injection of outside capital. Total liabilities were $7.6 billion at the end of 2023, cash was $7.8 billion, and the accumulated deficit was $18.6 billion.  How easy it will be to raise significant amounts of extra capital, that is highly likely to be needed in the next 12-18 months, will be interesting to see.

 

Rivian’s guidance for 2024 production is 57,000 vehicles, flat vs. 2023.  The $81k gross profit per vehicle improvement Q4’23 compared to Q4’22 that Rivian was touting in its 2023 highlights still resulted in a gross margin of -46%.  Even if they are able to improve margins again significantly, with SG&A still likely to be over $1.5 billion even after the announced cuts, the net loss number for the year is likely to be eye watering.

  • Distribution: Rivian operates a direct to consumer sales approach. It currently operates 11 “Spaces” (Sales showrooms) and 56 service centers in North America.  They plan on opening an additional 17 “Spaces” in 2024.  Almost all these “Spaces” are in major cities.  While the locations might be good for foot traffic, it seems a bit counterintuitive in terms of selling trucks and SUVs positioned against the rugged outdoor life Rivian features in their consumer communications. In 2022, Rivian produced 4,005 more vehicles than they delivered, and in 2023, the number was 7,110.  The excess production vs. deliveries over the past two years now amounts for just under a quarter’s worth of deliveries.  If Rivian had a dealership network, this would not be a major concern, however as it operates a direct to consumer models, it does raise the question on how this excess stock is being managed and why these cars were built in the first place.
  • Market Cap: Rivian’s market cap has been in a bit of a free fall since going public in 2021. It peaked at $127 billion in November 2021 and sits today at a more modest $ 10.8 billion.  The shares have basically moved in the same direction as Newton’s apple over the last several years dropping from $129.95 to $10.96.  Post the most recent earnings release analysis’ currently have price targets for Rivian ranging from $9 and $25 with a median of $17 which would indicate they see some upside.
  • Portfolio: Rivian current sells two models built off a single platform in three different performance trims.  It’s a four door R1T truck with a starting price of $70k and the R1S SUV which starts at $92k.  The smaller and less expensive R2 SUV (starting price $45k), which Rivian is betting heavily on, isn’t due until 2026.  The recently announced R3 probably will not appear for a few years afterwards.  While the portfolio of the future certainly has potential, with cash likely to run out by early 2025, it’s a major question on will Rivian live long enough to see the first R2s rolling off the line. 

We intend to harness this brand strength as we launch R2, which we will be unveiling on March 7th. R2 represents the essence of our brand while targeting the significant mid-sized SUV segment, a massive market with limited compelling EV options beyond Tesla. R2 has been developed with vertically-integrated propulsion platforms, electronics and software to create an incredible user experience.”

So we can add Rivian to what’s now a fairly long list of vehicle manufacturers (Lucid, AML, etc) betting that a SUV will save the business.

The Market: In his comments, Scaringe did acknowledge that:

 

“Our business is not immune to existing economic and geopolitical uncertainties. Most notably, the impact of historically high interest rates, which has negatively impacted demand. In this fluid environment, we appreciate the expressed interest in demand visibility from the investment community. The conversion of orders to sales can be impacted by several factors, including delivery timing, location of order, monthly payments, and customer readiness.”

And

“Our backlog (i.e order book) is something that we know there’s been questions around just what does that look like? What’s the topology of it? One of the things we need to recognize is a lot of the customers that are in our backlog have been there for a number of years. And as a result, it’s not as if the moment someone gets to the front of the line, so to speak, and they’re — we’re ready to make a delivery to them that they can take delivery at that moment. Life situation in terms of when they’re ready to take on a new vehicle, the coordination of that around what their financing expectations are, all of those factors play in.”

 

To summarize, for a company that desperately needs to increase volume, the economy is headed in the wrong direction and the order book is not exactly Ferrari quality.

  • Capacity: Rivian currently operates one major factory in Normal, Illinois with plans to build another in Georgia. The newly Normal facility currently has capacity for 150k vehicles and is being expanded to 200k in 2024.  The Georgia facility is planned to have capacity to produce 400k vehicles per year. Rivian’s current 2024 guidance calls for production of 57,000 units.
  • Post Earnings Call Development: Rivian announced they are delaying plans to build the $5 billion factory in Georgia. Production of the R2 will start at its existing plant in Illinois. This will save $2.25 billion in capital expenditures in the short term.  Why this was not announced as part of the earnings call is well beyond me.  It feels like either one of Rivian’s major investors might have had a “Come to Jesus” discussion with Mr. Scaringe after the 2023 earnings were released.

Summary

Going back to Elon Musk’s comment on Rivian: “the actual hard part of making a car company work is achieving volume production with positive cash flow.” He suggested his rival would go bankrupt in six quarters without a drastic change, saying it needed to “cut costs massively.”  There is nothing in the 2023 Earnings Report and 2024 Guidance that indicates Rivian is on track to achieve any of the above.  What hope there is, in the form of the R2, doesn’t arrive until 2026 and the R3 for all intents and purposes, is irrelevant at this point.  While the delay in building the Georgia factory is clearly the right decision and helps, the remaining gap is enormous.  While Rivian does deserve credit for the financial improvements it did make in 2023, it is taking baby steps at a time when giant leaps are needed.  Whether or not Rivian survives to see an R2 roll out the factory door will come down to a decision likely later this year by its investors and bankers on whether they believe Rivian has made enough progress in 2024 to make it worth investing/risking several more billion to bridge the company to 2026.

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March 2023

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3 Thoughts on Analysis of Rivian’s 2023 Results
    Steve Hewett
    17 Mar 2024
     4:40pm

    Of all the EVs currently on sale the Rivian product always struck me as the most likely to be bought by me, maybe!

    I happened to see a British TV series “Long Way Up” documenting a motorcycle journey undertaken in 2019 by Ewan McGregor and Charley Boorman, from Ushuaia in Argentina through South and Central America to Los Angeles in the United States.

    In it they rode Harley Davidson electric bikes with their support vehicle’s being the very first Rivian prototypes. The Rivian vehicles fared very well indeed , the Harleys less so.

    The accounts are awful. It just goes to show producing cars is relatively easy , making money less so. I hope they survive.

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    John.
    18 Mar 2024
     12:11pm

    My comment is only going to back up Steve Hewett’s above.

    I too watched “Long Way Up” with Ewan and Charley and one of the most impressive parts of that series was the Rivan prototypes they got a hold of. I’d say that even the Harleys did remarkably well given these too were prototypes and not the finished article. I’d commend both companies for the support they gave to make this adventure happen. And the terrain was definitely challenging for both vehicles!

    But as impressed as I was for the Rivan as a product, the numbers are eye watering. I’m not even sure how they can burn through so much cash and yet claim there was profitability on the cars!

    Share price is dot com investments all over again, and the markets getting excited to back another Tesla. They seen them as perhaps getting in on the ground floor of a new Tesla company and couldn’t help themselves, irrespective of what they financials said. They simply betted on Lucid and Rivan growing to become another Tesla almost instantly, which a dot com can do to a certain extent but bricks and mortar companies really can’t replicate.

    They definitely need to stop haemorrhaging cash, and the amount really bring questions to the viability of the business. But they need to get the R2 model out this year, not next. If the market for expensive SUVs is getting tighter, the smaller model is needed now more than ever.

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    Lyndon
    28 Mar 2024
     4:09pm

    I’ve been a fan of Rivian since they launched the R1, but the numbers are indeed horrific. the deal for delivery vans certainly gave them a start that others in the space didn’t have but they need to be doing much better very soon. The R2 is a more affordable product so gives an increased customer base opportunity (and the chance to sell in Europe in the future which the R1 is less appealing to) but I’d argue that the R3 is the more interesting/exciting product than the R2.

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