Rivian (RIVN 3.04%) doubled production in 2023, which is a pretty impressive feat. But 2024 won't see a repeat of that success, because the electric vehicle (EV) maker has put production growth on the back burner.
Instead, management is focusing on making money. That's an important change, and the fourth quarter is going to be a key test of its success or failure on this front. Here's what you need to know.
Rivian can't make money like this
In the fourth quarter of 2023, Rivian delivered 13,972 electric vehicles. That allowed it to generate revenue of $1.315 billion. The problem is that gross profit came in at negative $606 million. Simply put, it cost the company more to build the EVs it sold than it was able to charge for them. Rivian estimates that it lost $43,372 on each EV it sold in the three months ending in December 2023.
Image source: Getty Images.
You don't need to be an accountant to know that the math isn't working the way it's supposed to if Rivian wants to build a sustainable business. That's why the company is shifting out of growth mode. After production increased sharply in 2023, it's set to stay flat year over year in 2024, at around 57,000 vehicles. After all, there's no point in producing more and more EVs if you keep losing money on each one you sell.
The near-term goal is to simply start generating a gross profit, meaning that each vehicle generates more in revenue than it costs to build. That won't translate into the bottom line going from red ink to black ink, but it is a key first step.
There's two things investors need to understand on this front. Rivian is not expecting to have a gross profit for the full year; it's targeting a gross profit in the fourth quarter of 2024. That makes Q4 a key period for investors to monitor, though the company admits that its expected gross profit will only be "modest."
Getting from here to there
While the fourth quarter will be the key financial turning point, it won't be the business's turning point. That will occur in the second quarter, when Rivian shuts its factory down. During the shutdown, Rivian is going to be making a number of important changes.
New processes will be implemented that management hopes will improve efficiency. That's great, and exactly what you would expect. The plant really ramped up in 2023, and the company has likely learned enough to tweak the system for the better. However, there's more going on.
For example, Rivian is also implementing some product design changes that it hopes will be a net benefit. And it's changing some of its suppliers, bringing in lower-cost ones and pushing out higher-cost relationships.
Again, that makes logical sense, but there are larger issues. Every part that changes on an assembly line brings with it the potential to upend the entire thing if the part doesn't actually work the way it should. Something as simple as a new bolt is useless if it doesn't fit the old hole. In other words, this plant shutdown is going to be all about execution.
And it isn't just one thing that's changing. This is a major overhaul of the way Rivian builds its EVs. Early indications of whether it has succeeded will probably start to show up in the third quarter. But the real answer will be whether it lives up to its gross-profit goal for Q4.
Rivian is not for the faint of heart
Rivian has achieved impressive business results; now it has to work on its financials. It has laid out a key goal for investors to monitor, and explained how it plans to reach that target. But execution will be the linchpin, and there are a lot of things management has to get right.
Before buying this stock, most investors will probably be better off waiting to see whether the company can achieve its modest gross-profit goal in the fourth quarter. Only the most aggressive should bet on the success of the factory shutdown before it's even begun. And if you do buy Rivian today, you'll want to monitor that factory shutdown like a hawk.
