Electric automaker Rivian had negative gross profit of $606 million in the fourth quarter of 2023 alone. Yet the company, which has a production facility in Normal, said it will bridge to a modest gross profit in the fourth quarter of this year.
Rivian cited several hopeful signs in its recent earnings call. Operating expenses rose just 2% last year, yet the company more than doubled production and delivery. There are now more than 70,000 Rivians on the road. The company increased its gross profit per vehicle by $80,000 from the fourth quarter of last year.
That's a lot of progress and a lot of ground still to make up. Rivian is still losing $43,000 per vehicle it makes.
Rivian told analysts its per vehicle number would have been $5,000 better if not for costs linked to getting ready for a second-quarter plant shutdown and production line revamp and supplier changes. And per vehicle loss would have been better still if Amazon had not slowed acceptance of new delivery vans. Amazon focused on holiday deliveries instead of intake of new fleet vehicles. For example, Rivian said Amazon made up only 8% of fourth-quarter vehicle deliveries, down from 30% in the third quarter. As a result, Rivian built up its delivery van inventory. That’s ready when Amazon's pace rises again.
Rivian Chief Financial Officer Claire McDonough said they will close a big part of the gap in one area alone.
"The majority of this will be accomplished through material cost reductions planned as part of our (second quarter) 2024 shutdown," said McDonough.
McDonough said Rivian will save money through simpler designs, lower materials costs, and lower prices on supplies.
In a lot of industries supply costs have been going up. Why not for Rivian? CEO RJ Scaringe said they will pay less for parts. The industry has changed a lot since the last round of contracts in 2019 and 2020, he said. Parts manufacturers now have more confidence in the viability of the EV sector in general and in Rivian in particular. Scaringe said Rivian is also buying more parts as it has ramped up production.
"They now see us as a large customer, and they see what's coming with R2, and that gives us really meaningful negotiating leverage," said Scaringe.
R2 is a new, less expensive vehicle Rivian will unveil next month. Scaringe said in many cases they've been able to renegotiate and remove the price premium for parts they had to pay as a new company. Where they couldn't do that, he said, they've found new suppliers. And in one case he says raw materials costs are down sharply.
"In the last year specifically, lithium hydroxide is down by about 4x from north of $80 per kilogram to just over $20 a kilogram today. So that has a very significant impact on our overall cost structure," said Scaringe.
Lithium is used in EV batteries.
Industry analysts have clucked a bit about the effect of the shutdown on Rivian's annual production. Rivian made more than 57,500 vehicles last year, double what they did in 2022. Analysts fret at the news Rivian projects it will make about the same number of vehicles this year. How does that help get to break even this year? Rivian's answer is, even apart from lower parts costs, Rivian will be better at making the EVs.
McDonough said another 30% of the per vehicle loss will go away because of that second-quarter pause.
"As part of our planned shutdown, we are increasing the R1 line rate by approximately 30% to produce vehicles more efficiently," said McDonough.
It'll take fewer hours of labor to make a vehicle. The company has also announced a 10% cut in salaried jobs to lower costs.
Rivian claims the final piece of the bridge, about 15% of it, will be an uptick in non-vehicle revenue. After all, McDonough said, there are those 70,000 Rivians on the road and growing.
"We have the opportunity for increased revenue areas such as regulatory credits, accessories, service remarketing, and software enabled services," said McDonough.
Analysts wanted to know about the planned launch of the new R2 vehicle and whether the company could put off the line shutdown on the R1 so perhaps production could be higher this year. Scaringe said no. The tech on both vehicles is tied together and there is "massive consolidation."
"We reduced the number of computers by about 65%. And that network architecture and associated ECU (electronic control unit) topology is very closely related to what's in R2. It not only de-risks R2 but it's part of the development process and development sequences associated with the launch of that product," said Scaringe.
He said the parts change-out of hundreds of components in the R1 will also help lower the cost of R2.
Scaringe said part of Rivian's current cost structure came from launching production of two vehicles at once — a van and a pickup truck. There are also several variations of the truck. He said one of the lessons learned from that is the company will launch the R2, a single vehicle, with limited combinations.
He also said the company is better known now and Rivian has a good reputation which will continue to help sales.
"Customer satisfaction is extremely high. Brand strength is high. Consumer Reports rates us as having the highest level of brand equity, if you will, where the likelihood of re-purchase is the highest for our brand. And a lot of that is born out of the continued updates we're making through over-the-air software improvements," said Scaringe.
Rivian is optimistic. But they also burned through $4 billion last year. They expect to draw down $2.7 billion this year as they continue building out their charging, sales, and service networks.
"We remain confident that our cash equivalents, and short-term investments can fund our operations through 2025," said McDonough.
But there's also that planned new plant in Atlanta, Georgia. Rivian plans to spend $1.7 billion in infrastructure this year.
So, like the movie, Rivian has to continue doing everything — everywhere — all at once.
