A storm has been brewing around the electric vehicle (EV) industry. The storm is a mix of high interest rates that make consumers hesitant to purchase vehicles, charging infrastructure challenges, a saturated high-price market for EVs, and a lack of affordable options.
For Rivian (RIVN 6.10%) investors, the storm led to disappointing production guidance that would leave 2024 roughly flat compared to last year. However, that doesn't mean the company can't still thrive in 2024. Here's a look at some positive developments for the young EV maker.
Doubling down
When Rivian unveiled its R2 crossover, as well as the surprise R3 and R3X, it also announced it would accelerate the production timeline of the R2 by bringing initial production into its original Illinois factory. The original plan was to produce the R2 at the Georgia plant, which has now been slightly delayed.
But what investors might have missed is that not only is Rivian focusing more on its Illinois plant, the state is looking to double down on Rivian. Currently, Illinois is negotiating an incentive deal to help support the young EV automaker, and once the details are finalized, the incentive package will be announced to the public.
This strategic adjustment is a huge deal for investors. Rivian needs to get its more affordable R2 vehicles on the road as soon as possible, and the move not only accelerates the timeline of R2 production to the first half of 2026, it saves the company roughly $2.3 billion.
The $2.3 billion savings is huge when considering the company had $9.4 billion cash at the end of 2023, and a full-year operating loss of roughly $5.7 billion. Potential incentives from Illinois would simply be a cherry on top but shouldn't be ignored when you consider Georgia offered $1.5 billion in incentives for the plant Rivian still intends to build there. Illinois' incentive package would likely check in lower than Georgia's, but it could still be impactful.
The move to bring R2 production to Illinois is really a no-brainer when you consider 2024 production is expected to be 57,000 vehicles and that Rivian expects the factory capacity to reach 215,000 vehicles per year. Now the company can use the extra capacity to improve scale and get the R2 on the streets sooner.
But wait -- there's more
While slowing EV demand is certainly not positive news for Rivian, the slower growth has resulted in lower lithium prices. In fact, lithium-ion battery pack prices fell 14% from 2022 to 2023. Freshly discovered lithium reserves in the Salton Sea in Southern California could also help keep longer-term lithium prices lower.
Thanks in part to falling battery prices, a recent study from technology analysis firm Gartner says that EVs will be less expensive to build than internal combustion cars by 2027. That is a big swing in costs for a company such as Rivian that's desperately trying to first become gross profit positive, and then reach profitability.
What does it all mean?
Yes, investors and Wall Street analysts alike were disappointed in Rivian's production guidance, which fell far short of the nearly 82,000 units Wall Street expected. But that doesn't mean Rivian can't still thrive in 2024.
Management still plans to become gross profit positive in part because of its planned second-quarter shutdown that will swap in some new suppliers and drastically improve efficiencies. Combine that with a faster timeline to produce R2, using up excess capacity in its original Illinois plant, with a possible incentive package as the cherry on top of $2.3 billion in savings, and Rivian still has a path to thrive in 2024.
