In the electric vehicle (EV) world, a truck is one of the last models to come to market. Rivian (RIVN -2.10%) beat everyone to the punch with its R1T and R1S models, but General Motors and Ford Motor soon followed suit with their launches.
EV leader Tesla (TSLA -1.41%) has long talked about its Cybertruck EV, but had yet to roll one off the production line. However, the first Cybertruck EV rolled off the production line in mid-July, signaling that years of delays are finally over.
With the Cybertruck nearing mass delivery, is Rivian finished? Or can the company survive in an increasingly crowded environment?
Rivian's competition is increasing
Rivian's trucks are becoming more prevalent on the road as its production numbers have steadily increased. In Q2, Rivian built nearly 14,000 vehicles, a significant rise from the 4,401 it made during Q2 2022. It also reaffirmed its goal to build 50,000 vehicles in 2023.
However, Rivian quit sharing its reservation figures once it started producing vehicles at a strong rate. With the latest figure coming in at around 114,000 as of September 2022, Rivian's reservation number has likely decreased. Furthermore, it's unknown if the customers reserving a truck want an EV truck or a Rivian EV truck, so there could be some concerns about customers jumping ship as Ford, GM, and now Tesla bring their EV trucks to market.
While it's far from an official source, a consumer-made Excel sheet tracker has reached more than 1.9 million Cybertruck reservations, showing that the interest in the Cybertruck is high. However, with it only costing a refundable $100 deposit to hold your place in line, that figure isn't a great one to rely on. Still, it shows a lot more interest in the Cybertruck than the R1T.
Image source: Rivian.
Further, Rivian's pricing is significantly higher than any of its competitors' numbers. The starting price for a R1T is $73,000 without any tax credits. Compared to the F-150 Lightning's starting price of $61,689, buyers pay a significant premium to own a Rivian.
While official pricing hasn't been released on the Cybertruck, Tesla will likely try to come in at or around the cheapest model to remain competitive in an important market.
But even as other products hit the market, can Rivian reach a profitability point before its business dries up?
Running out of time to become profitable
Because Rivian is still in the ramping-up phase, assessing when it could break even isn't easy. For a fully built-out company like Tesla or Ford, each additional vehicle that rolls off the line incrementally increases its profits by a fixed amount. However, when an additional Rivian truck is produced, it significantly impacts its bottom line because overhead costs significantly outweigh the revenue Rivian generates.
For example, in Q1, Rivian brought in $661 million, but the cost of revenue was $1.2 billion, giving it a gross margin loss of 81%. That's a deep hole to dig out of, and with $898 million in operating expenses, Rivian posted an astounding 217% loss margin in Q1. Still, this has steadily improved over the past year.
RIVN Operating Margin (Quarterly) data by YCharts
Those figures were achieved when the company produced about 9,400 vehicles in Q1, so they should substantially improve, as Q2 production rose about 50% quarter over quarter. We'll find out the actual effects when Rivian reports earnings on Aug. 8, but it's safe to say it won't be enough for Rivian to turn a profit.
As of March 31, Rivian had about $12 billion in cash and equivalents on hand. During the quarter, it burned about $1.5 billion in cash, leaving Rivian with about two more years of operation left. However, because it took on about $1.5 billion in debt during Q1 (bringing its total to $2.7 billion), Rivian's cash position hardly changed in Q1.
As Rivian improves its profitability each quarter, that burn rate should decrease. However, with Rivian's lower reservation figure, it may not have the customer base necessary to support full-scale production, especially with fierce competition.
Moreover, two years isn't a long time to reach profitability. With the market becoming more competitive, it's hard to imagine a scenario where Rivian establishes a solid foothold. If you're going to own an EV truck stock, it has to be Tesla, in my mind. Rivian makes a cool and excellent product but hasn't reached scale as quickly as needed to survive.
