After much of the hype died down from Rivian Automotive's (RIVN -4.07%) initial public offering last November, its stock plummeted from levels that had valued it at more than both Ford and General Motors at the time. Investors soon realized the realities involved in starting an electric vehicle company from scratch.
Earlier this year, Rivian told investors that it would be limited to producing 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. Other EV start-ups were lowering projections as well due to supply chain disruptions. Many wondered whether the company would slash projections again in its second-quarter report, but what it said boosted investor confidence instead.
Important progress
A lot of factors have made investors wary of early-stage EV manufacturers recently. The macroeconomic environment presents many obstacles, including rising raw material costs, supply chain disruptions, and consumers reining in spending. Companies like Rivian that are just starting to ramp up production and build a customer base are particularly affected.
Fellow EV start-up Lucid Group cut its already-reduced production estimate for the year in half in its recent second-quarter release. That had investors concerned that Rivian would have similar material supply problems that would cause it to lower production guidance. But it reaffirmed its production target of 25,000 in its second-quarter report.
Investors have pushed Rivian shares up more than 20% in just the past month, so any change would likely have hit the shares hard. Perhaps the best news to be gleaned from Rivian's comments is what its production guidance means for the future. For the company to hit its guidance, it will need to double the number of vehicles produced in the second quarter over each of the next two quarterly periods. That means it has the materials and equipment it needs to continue to ramp up, which is a big deal.
More work ahead
The increase in vehicle production comes as preorders for Rivian's consumer vehicles also continue to grow. The company now has nearly 100,000 preorders for its R1T and R1S pickup truck and SUV models. Those preorders are cancelable and refundable, but they have continued to grow over the last year. The preorders of its consumer trucks are in addition to an existing 100,000-vehicle order from Amazon for Rivian's electric delivery vehicles. The deliveries for that order have also started and should continue over the next several years.
Data source: Rivian Automotive. Chart by author.
But those rising preorders have also put the company in a bit of a financial bind. Earlier this year, Rivian tried to raise prices on its vehicles to compensate for rising raw material costs. But owners of the approximately 80,000 preorders already placed threatened to cancel their orders if they didn't get the original pricing. Rivian then implemented the price increase only with new preorders, starting in the second quarter. That will force Rivian to absorb those rising costs, and that showed in the latest report.
Risks remain
For investors, that means that there is still plenty of risk with an investment in Rivian. Now that the company has incurred net losses of $3.3 billion since the start of 2022, Rivian's cash position has dropped to $15.4 billion. That's down from about $17 billion at the end of the first quarter.
The company did generate meaningful revenue of $364 million in the second quarter, however. CFO Claire McDonough told investors in the company's conference call, "We've seen unprecedented levels of inflation, especially across our raw material inputs and lithium prices." She added that the company had experienced increased costs due to expedited shipments but that it plans to move more product by rail.
Rivian is working to address those challenges by cutting 2022 capital expenditures by $600 million to $2 billion, and it prepared investors to expect a lowered adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of negative $5.45 billion for the year.
For long-term investors, however, the production news was the key to the report. If the company can navigate current challenges and continue to increase production at a meaningful rate beyond this year, financial concerns should ease.
