Estimates project that nearly two out of three cars sold in 2030 will be an electric vehicle (EV). Such big demand will create a valuable opportunity for companies looking to boost adoption and capture market share.
One of those companies is up-and-coming start-up Rivian Automotive (RIVN 6.10%). With vehicles catered toward outdoor enthusiasts and businesses needing commercial vans, Rivian is tapping into demand that other automakers have yet to address fully. Riding the coattails of EV adoption, Rivian offers plenty of potential for investors.
But do the risks outweigh the benefits? Before making that decision and adding it to your portfolio, here are three things you must know.
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Profitability challenges continue
Rivian had the largest initial public offering (IPO) of 2021, making it the most valuable IPO for an American company since Meta back in 2012. Yet with all this hype, its stock has plummeted since it launched on the Nasdaq for one key reason -- the company has yet to turn a profit.
In the most recent quarter, Rivian reported a net loss of $1.37 billion. That means it lost nearly $31,000 for every vehicle it sold in the third quarter. With the inability to generate a profit, Rivian has cut into 60% of its total cash in just two years. As it stands, Rivian's initial cash and equivalents position of $19.9 billion, which it secured upon its IPO, is now worth just under $8 billion.
Production growth looks encouraging
Even though profitability still evades the company, it looks to be on the right path. In Q3 2022, Rivian produced 7,363 vehicles. Reports from Q3 this year show production more than doubled, with 16,304 vehicles produced. This rise in production efficiency led management to revise its yearly target, with expectations now reaching 54,000 vehicles delivered this year. Should the company reach this goal, it would more than double its 2022 total of 24,337 vehicles.
Considering that Rivian operates out of just one factory, in Normal, Illinois, these trends are more than encouraging. But as long as Rivian is confined to a single factory, production will be limited. However, that appears to be in the process of changing. Recently, the company reached an agreement with the state of Georgia to develop a new factory. The $5 billion project is slated to begin in 2024 in Social Circle, just a short drive outside Atlanta.
The project will be split into two phases. Management believes fulfillment of Phase 1 will increase production by 200,000, and the following Phase 2, expected to be completed by 2030, will add another 200,000 vehicles per year.
New battery packs could limit costs
Increasing production is only half the battle when it comes to turning a profit. For EV manufacturers to truly succeed, they need to mitigate costs. With EVs, one of the primary costs is related to battery production. Because of the intricate nature of batteries and the rare earth materials (nickel, copper, lithium) they require, EV manufacturers incur much more significant costs than traditional automakers.
But thanks to a recent development, Rivian is making great strides on this front. At the Global Automotive and Mobility Tech Conference, Rivian CFO Claire McDonough announced a new simplified battery pack the company will introduce that will "take thousands of dollars of costs out [and] is much easier to manufacture and build as well."
The introduction of the battery pack is planned for 2024 and will undoubtedly improve operational efficiency and streamline its supply chain. Yet, more importantly, it could lead to lower price tags on vehicles and stimulate demand even further.
