Investors are about to find out in which electric vehicle (EV) camp Rivian Automotive (RIVN +0.67%) resides. Is it a struggling start-up like Lucid Group that is about to lower its production estimates for the second time this year? Or is it a budding juggernaut that will soon dominate its niche markets like Tesla?
The company will likely offer some clues when it reports its second-quarter financial update this Thursday, Aug. 11. Whether the update moves the stock up or down in the short term, investors should be wary of the potential news and proceed deliberately with any thoughts of investing in Rivian.
NASDAQ: RIVN
Key Data Points
Tough times
When Rivian reported its 2021 fourth-quarter and full-year earnings in February 2022, it told investors that it would only be able to produce 25,000 vehicles for the full year even though it already had equipment and processes in place at its Illinois factory to support the production of 50,000. That was due to supply chain constraints that had limited the availability of parts and materials needed for both its R1 platform consumer trucks as well as the electric delivery vehicles (EDVs) ordered by Amazon.
The same issues are being encountered by many EV companies globally, but it is especially impactful for those just starting up operations like Rivian and Lucid. Lucid similarly reduced its previous projection for 2022 production by 40% in its February earnings release. Notably for investors, however, Lucid updated its production estimates again last week by slashing the previously lowered volume in half. It will be particularly informative to see whether Rivian maintains its goals for 2022 this week or not.
Demand remains strong
Whatever happens in the near term, the good news for EV investors is that demand is strong and growing. For Rivian, in addition to a 100,000 EDV order from Amazon that will be delivered over the remainder of this decade, preorders for its consumer pickup truck and SUV offerings continue to increase. Those preorders can be canceled and deposits refunded, but in less than one year, they have nearly doubled.
| Metric | 5/9/22 | 3/8/22 | 12/15/21 | 9/30/21 |
|---|---|---|---|---|
| R1 Preorders | >90,000 | 83,000 | 71,000 | 48,000 |
Data source: Rivian Automotive.
One downside to that order growth rate to be aware of was revealed when Rivian attempted earlier this year to raise vehicle pricing as raw material costs inflated. The company received blowback from reservation holders and was forced to maintain the original price on the approximately 80,000 vehicles that were already on preorder through the first quarter of 2022.
With Rivian expecting to produce just 25,000 EVs this year, the company will have to absorb the higher costs, which will be a drag on its results well into 2023 at least. Rivian lost nearly $1.6 billion in the first quarter, so investors will likely have to endure meaningful losses and disappointing margins for the foreseeable future.
Other risks
Growing competition is another risk Rivian investors need to consider. The U.S. government may enact legislation to help the sector in several ways. But Rivian just complained that, depending on the final wording of the Inflation Reduction Act should it pass Congress and be signed into law, the portion addressing climate change actually puts Rivian at a disadvantage.
In a statement reported by The Wall Street Journal, Rivian said the legislation in its current form would make most of its vehicles ineligible for a $7,500 tax credit incentive for consumers. There is a price cap limit on eligible vehicles that could eliminate Rivian's trucks from consideration. Jim Chen, Rivian's vice president of public policy, blamed the high vehicle prices on the new technology itself. He argued that the new technology needs to become more mainstream for costs to come down, but the incentive limit would create the opposite effect.
In addition, more established EV makers like Tesla could become eligible for the new incentives as the bill could lift a 200,000 vehicle sales limit for the tax incentives. Tesla, General Motors, and Toyota have all surpassed that level of sales.
Investors considering an investment in Rivian will want to hear what the company reports this week. In addition to production estimates, financial results will be important. In Q1, Rivian reported negative cash flow of about $1.45 billion. While it held $17 billion in cash and equivalents as of March 31, 2022, accelerating drains on its cash could knock the stock down, at least in the short term.
