2024 is a critical year for Rivian, the American EV start-up, as it aims to decrease expenses in order to endure. The approaching year is readied to be a zero hour for this fascinating electric-vehicle firm in the United States.
On Wednesday, the firm reported that it shed $1.58 billion in the 4th quarter of in 2014, bringing its web annual losses to $5.4 billion. It revealed that it is laying off regarding 10% of its salaried workers, however– at the same time– assured that it has a strategy to accomplish a little profit by the end of this year.
Rivian does not appear to be in trouble– not quite yet, at the very least. However the earnings explained what electric-vehicle observers have known for a long period of time: Either the company will emerge from this year poised to be a victor in the EV shift, or it will certainly find itself up against the wall.
Rivian has an impressive array of corporate milestones on the horizon, with several significant events taking place over the next 11 months. The company is set to unveil a new line of vehicles, temporarily halt production for cost-saving upgrades, initiate construction on a $5 billion facility in Georgia, and aim to achieve profitability for the first time. Additionally, Rivian plans to manufacture and deliver approximately 60,000 vehicles to customers.
Any one of these goals would be difficult to achieve in any environment. But Rivian is going to have to execute all of them during a time defined by “economic and geopolitical uncertainties” and especially high interest rates, its CEO R.J. Scaringe told investors on Wednesday. Since 2021, Rivian’s once robust stockpile of cash has been cut in half to about $7 billion; at its current burn rate, the company will run out of money in a little more than two years.
Although Rivian’s situation is dire, it’s not experiencing anything out of the ordinary. As I’ve written before, the electric truck maker is crossing what commentators sometimes call “the EV valley of death.” This is the challenging point in a company’s life cycle where it has developed a product and scaled it up to production– thereby raising its operating expenses to eye-watering levels– but where its revenue has not yet increased too.
During this vulnerable period, a company essentially burns through its cash on hand in the hope that more customers and serious revenue will soon show up. If those customers don’t arrive, then it either needs to raise more cash … or it runs out of money and goes bankrupt.
Although the current situation may evoke fear, there is potential for a prosperous future. Similar to Tesla’s journey seven years ago when it was on the verge of introducing the Model 3, Rivian is now facing a similar challenge. Back then, Tesla was in a precarious position, but it managed to overcome the obstacles and is now the world’s most valuable automaker.
Once Rivian’s revenue exceeds its costs, its problems will get easier, or at least more straightforward: Instead of fighting for its survival and watching its cash reserves dwindle, Scaringe will be able to make more strategic trade-offs. Should the company cut costs to expand its profit margin and reward investors, or should it pass the savings along to customers in the form of lower prices, thus growing its market share? Scaringe can’t make these types of decisions until his firm is safely out of the valley.
Claire McDonough, Rivian’s CFO and a former director at J.P. Morgan, has devised a strategy to overcome the company’s current challenges, which she refers to as a “bridge to profitability.” This plan will be implemented this year and focuses on reducing the cost of producing Rivian’s vehicles by utilizing fewer materials and streamlining the manufacturing process. Additionally, the company aims to increase production rates to achieve greater efficiency. According to McDonough, these measures will be crucial for Rivian’s survival and will take the company approximately 80% of the way towards profitability.
Another 15% will come from marketing more “software-enabled products” to Rivian drivers and by selling air-pollution credits to other carmakers, whose vehicles are not as climate-friendly. This is a tried-and-true technique; Tesla first turned a profit in 2021 by selling regulatory credits needed to comply with federal and California state-level rules to other, dirtier automakers. But that same year, Tesla also debuted an entirely new vehicle: the Model Y crossover, which quickly became its top seller in the United States. Tesla, in other words, finally started to make money by cutting costs, finding new revenue sources, and releasing new products.
Rivian is facing challenges with its new products, as the company expects limited demand for its vehicles this year due to high interest rates. The company now plans to produce around 60,000 vehicles, a decrease of 20,000 from its initial projections. The Rivian R1S, an S.U.V. with three rows, has emerged as the company’s top-selling model, proving more popular and cost-effective to produce compared to the R1T pickup truck. The starting price for the R1S is $75,000, with leasing costs averaging nearly $600 per month. The higher-end models can reach up to $99,000. Selling trucks priced at $70,000 is proving challenging, especially with prevailing new-car loan rates around 6%.
Rivian once had a first-to-market advantage in the electric three-row SUV market, but that may be fizzling out, too. Kia is now selling its own all-electric three-row SUV, the EV9, for $18,000 less than the R1S; in fact, the Kia EV9’s most expensive trim costs $76,000, which is only slightly more than the cheapest R1S. The Kia SUV can also charge faster than the Rivian under ideal conditions. It remains an open question how many rich suburbanites are still interested in buying Rivians, especially now that the Tesla Cybertruck and Ford F-150 Lightning are competing directly with Rivian’s pickup truck.
The company’s success hinges on the release of its upcoming product line, the R2, which is set to launch on March 7. While details are scarce, the line is expected to feature an SUV and will likely fall in the price range of $45,000 to $55,000. The company’s CEO, Scaringe, believes the R2’s timing is ideal, aligning with a significant shift in the American EV market. He anticipates that consumers will be more likely to purchase an electric vehicle as their next car, and the R2 aims to capitalize on this trend.
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Rivian may still face challenges in the EV market, despite their efforts to catch up with Tesla. When Tesla first introduced the Model 3 in 2017, it quickly became a top contender due to its unique position as one of the only electric vehicles available at the time. However, the market has since become increasingly saturated with competitors, as every major automaker has announced plans to release electric vehicles in the same price range as the Model 3.
Rivian’s success is not solely dependent on the American consumer market, as it also caters to commercial fleet operators and delivery trucks to Amazon, with the latter holding a significant stake of approximately 17%. However, this business segment can be unpredictable, as evidenced by Rivian’s slowdown in vehicle growth in the previous quarter, primarily due to a temporary decrease in sales to Amazon, which tends to slow down vehicle procurement during the fourth quarter. While Amazon’s potential support for Rivian remains uncertain, it is not yet reflected in the data.
None of this is to say that the company’s outlook is dire. Rivian was always going to find itself at a moment like this, when its expenses exceeded its revenue by such a large amount. The automaker already has devoted fans, and many people– myself included– are interested in the R2 as a potential first EV purchase.
And the company has shown that it can make strides in a single year. Twelve months ago, I had never seen a Rivian on the road before; today, one is regularly parked on my block. The company rocketed from a standing start to become the No. 5 best-selling electric car brand in America last year. What the company has done so far is impressive. But now it must prove that it can be great.
