Tesla (TSLA -1.11%) achieved something that was thought to be virtually impossible. It built an electric vehicle (EV) company (from the ground up!) and ultimately was able to take on the auto industry's largest competitors. Rivian Automotive (RIVN 6.10%) has similar dreams, but investors hoping that Rivian is the next Tesla need to watch closely to see if Rivian can start to mend this sizable problem in 2024.
It isn't easy to build a car company
If you wanted to build an online retailer you could pretty easily set that up in a day. There are tools out there that allow you to find a product, create a website, and support the entire back-end process of selling and shipping. If you wanted to build an automobile manufacturer, well, it would be a little harder.
TSLA EPS Diluted (Quarterly) data by YCharts
Making a car is a highly capital-intensive process. It requires developing massive manufacturing facilities, acquiring costly supplies, assembling a large workforce, and spending a lot of time to get all of that together. And let's not forget the regulatory issues around the safety of the vehicle to get the automobile approved for the road. It was years before Tesla was able to turn a sustainable profit. In fact, the electric vehicle giant didn't actually achieve that until roughly 2020.
And it is important to note that Tesla didn't have to take on a dominant peer while it was marching toward black ink on the income statement. It was, fairly realistically, the only EV game in town for car buyers. So not only is the task ahead of Rivian a hard and expensive one, it is taking place in a very different market environment.
Can Rivian be the next Tesla?
Rivian has, in fact, achieved a great deal of success as it looks to become a major player in the EV space. It has the infrastructure to support planned 2024 production of around 57,000 vehicles. In fact, the company produced roughly that many vehicles in 2023. Simply put, it is a legitimate automaker. But it isn't anywhere near Tesla on one of the most important metrics that investors look at on a regular basis.
TSLA EPS Diluted (Quarterly) data by YCharts
Rivian isn't even close to being profitable. In fact, as the chart above highlights, its losses are dramatically worse than the losses Tesla generated while it was building out its EV business. To put some actual numbers on this, in 2023 Rivian generated $4.4 billion in revenue, which is huge, but its cost of sales was $6.4 billion. It lost money on every single EV it sold, which is obviously not a sustainable business model.
That's why 2024's big goal is cost-cutting. There are all sorts of factors that will drive this effort, including staff reductions and efforts to enhance efficiency, but those nuances aren't the important thing for investors to watch. Investors need to monitor the overall success of the cost-saving program. Rivian will never be the next Tesla if it can't find a way to make a profit on the EVs it is building and selling. Indeed, if it can't turn a profit, it has a high likelihood of ending up being the next Delorian, an auto brand that was hot for a while but went bankrupt in less than a decade.
It's not going to happen for Rivian in 2024
Here's the tough fact: It seems unlikely that Rivian will turn a profit in 2024 even as it works so hard to reach that key goal. In fact, the company expects negative earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024. Luckily the company has a roughly $9 billion cash hoard on its balance sheet to help sustain it as management continues to build out the business (capital expenditures are projected to be $1.75 billion in the year, so there's still ample financial wiggle room for now).
So what investors need to watch isn't for a shift from red ink to black ink in 2024. The key factor is going to be execution toward that turning point. If Rivian can move steadily closer to profitability then there remains a chance that this upstart automaker can at least match some of the success Tesla achieved. That said, more conservative investors will probably want to watch the progress from the sidelines. If Rivian isn't successful in its efforts to become profitable then it probably won't be a particularly attractive investment.
