What happened
Shares of electric truck maker Rivian (RIVN 1.68%) were plunging in Wednesday trading, falling as much as 9.9% before settling into a 7.7% decline as of 1:24 p.m. ET.
What was strange about this decline was that Rivian reported relatively better-than-expected results last night and also gave better-than-expected guidance for 2023 production. And today, several Wall Street analysts were increasing their price targets on the stock.
However, Rivian is still inking fairly sizable losses on its bottom line, and the stock had already risen some 50% this year prior to last night's earnings. With Fitch's downgrade of U.S. debt last week and investors perhaps nervous about tomorrow's inflation report, the stock nevertheless sold off.
So what
In the second quarter, Rivian delivered, both literally and figuratively. The company produced 13,992 vehicles and delivered 12,640 vehicles, which led to above-consensus $1.12 billion in revenues, up more than 207%, and a better-than-expected loss per share of $1.08. Importantly, Rivian cited an improving supply chain putting it on track to produce 52,000 vehicles, up from its prior guidance of 50,000. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) losses for the year are now expected to be $4.2 billion, improved from the prior outlook of $4.3 billion.
The company also announced progress on several technological fronts. Management noted the successful implementation of its in-house Enduro motor system, which was just introduced in Q1 and improves both performance and scalability. Rivian also improved its vertical software stack that allows for more predictive maintenance and should therefore lower costs further in the future. The company also noted a new networking architecture to be implemented in 2024, which should lower the number of electronic control-unit chips and decrease wire-harness length, further streamlining costs alone.
Yet as exciting as the positive results were, it still wasn't enough to lift Rivian shares. The company is still reporting quite sizable losses, and although Rivian has over $10.2 billion in cash on its balance sheet against $2.7 billion in debt, it also burned through more than $1.6 billion in cash during the past quarter alone. With a nearly $22 billion market cap even after today's pullback, there seems to be a fair amount of optimism over the upcoming ramp to profitability already baked into the share price.
Now what
Rivian looks to be among the best choices of the newer-age electric vehicle companies that have just come to market over the past few years. While it's still inking losses, its ample cash balance along with its smart strategy of targeting the highly profitable truck and SUV markets puts it in a relatively good position to eventually get to profitability. Moreover, the company appears to be executing better after supply chain problems and inflationary pressures over the past year.
Still, getting a new auto line to scale is hard and capital-intensive, which is why so few new car brands have made it without going bankrupt or being acquired over the past 100 years. After the strong year-to-date gains in technology-growth stocks and the market generally, a more risk-off mood due to inflationary and recessionary concerns will be tougher to overcome for Rivian and stocks similar to it.
