Attracting Tesla (TSLA -1.11%)-level hype during its initial public offering (IPO), Rivian (RIVN 6.10%) entered the electric vehicle (EV) market with hopes of rising to the upper echelons of the industry. But since its public debut, Rivian has fallen on tough times.
With mounting expenses and an inability to turn a profit, Rivian's path to a growth story like Tesla's is becoming less likely by the day. When accounting for market trends, such as weakening sales projections in 2024 and ever-increasing competition, Rivian's chances of rising to become a company of Tesla's prominence appear slim.
Off to a better start?
In Rivian's defense, it's often overlooked that Tesla struggled to run a profitable business for most of its history. Its first full year of profits didn't occur until 2020, nearly a decade after its IPO. From this angle, Rivian's lack of profits is nothing surprising. Call it par for the course.
Making the case better for Rivian is that it produces almost 20 times the number of vehicles that Tesla did in its early days. By the end of its second full year as a publicly traded company, Tesla produced barely 3,000 vehicles. Rivian just crossed the same milestone, and it manufactured more than 54,000 vehicles in 2023.
While many Tesla bulls will paint Rivian's recent financial performance as inexcusable, in some regards it's off to a better start than the world's most valuable automaker. But unfortunately for Rivian, even its remarkable progress might not be enough to save it.
Image source: Getty Images.
Market conditions shift for the worse
The EV market has shifted dramatically compared to when Tesla launched its business. What was once a market with just a few key players has transformed into a highly competitive landscape of legacy and start-up automakers vying for supremacy.
When Tesla debuted on the Nasdaq in 2010, EVs made up only 0.01% of total global auto sales. Fast forward to Rivian's entry in the 2020s, and the EV market has witnessed explosive growth. In 2023 alone, EVs accounted for 18% of global auto sales with 13.6 million units.
This surge in demand has prompted traditional automakers like Ford, General Motors, and Volkswagen to aggressively enter the EV market, introducing a plethora of electric models to meet consumer preferences and upping the ante for hopeful competitors like Rivian.
Making matters worse is the maturation of the market as a whole. Like any industry, the early days of EVs saw the most significant growth. This greatly benefited Tesla, as it could capture market share with little to no competition during the industry's most explosive stretch.
However, the growth of electric vehicles is expected to wane, as exponential growth cannot continue indefinitely. Adding to the slowdown are persistent high interest rates, causing consumers to reduce their spending on luxury goods such as new vehicles, particularly Rivian's expensive models. While total EV sales in the U.S. will likely continue to grow in 2024, it won't be at the rate of previous years. For a company already struggling to turn a profit, this contracted growth could put Rivian in dire straits.
The bottom line
Despite Rivian demonstrating notable progress in its production capabilities, the absence of profitability poses a formidable obstacle, especially given that it seems to be moving in the wrong direction. In Q4 2023, Rivian reported an alarming increase in its per-vehicle loss, soaring from $30,000 in Q3 to a staggering $43,000. On an annual basis, Rivian lost more than $2 billion in 2023.
Without income, Rivian's operations are sustained solely on its cash reserves. While its massive IPO initially bolstered its financial position, the company has rapidly depleted these reserves, with around 60% already spent. At the current pace, Rivian's remaining cash may only sustain its operations for two years at best.
Unfortunately for Rivian, its inability to rein in expenses amid an inauspicious market threatens any hopes of profitability. With the margin of error markedly narrowed, the prospect of Rivian transforming into a Tesla-like success story appears more like wishful thinking than an achievable reality.
