Rivian's Big Problem Doesn't Go Away

Tesla's heralded rival faces lingering supply chain issues, which lead the EV upstart to issue disappointing guidance.

For several months now the electric-vehicle upstart Rivian has cited the same refrain: Supply-chain problems have disrupted the ramp-up of its production. 

These problems hindered operations in 2022 and will persist this year.

"Supply chain continues to be the main limiting factor of our production," the company said in a shareholder letter on Feb. 28, explaining that during the 2022 fourth quarter it "encountered multiple days of lost production due to supplier shortages."

"As expected, during the fourth quarter of 2022, in-transit time from rail shipments combined with increased volumes from the ramp of our second shift towards the end of the quarter caused a larger discrepancy between production and deliveries," Rivian detailed.

Going forward, "we expect supply-chain challenges to persist into 2023 but with better predictability relative to what was experienced in 2022."

Rivian Misses a Lowered Production Target

These problems led Rivian,  (RIVN) - Get Free Report which manufactures the R1S SUV, the R1T pickup truck and the EDV van at its Normal, Ill., plant, to halve its initial production target to 25,000 last year. 

But in the end, the firm did not quite manage to meet this objective, ultimately producing 24,337 vehicles, including 10,020 in the fourth quarter.

For this year, Rivian  (RIVN) - Get Free Report promises to manufacture 50,000 vehicles, a forecast that's short of analysts' expectations of 60,000 vehicles. And given the persistent supply-chain problems, the automaker risks not achieving this goal either.

"On one hand Rivian is making progress and will learn from their manufacturing issues going forward with demand that still appears holding up very well despite the macro," said Wedbush analyst Dan Ives. "However, time is ticking and constant production headaches a major frustration-23 production guide light."

Besides production, Rivian, like another young EV maker, Lucid  (LCID) - Get Free Report, also seems to face an emerging demand problem. These difficulties stem from the price war Tesla launched at the beginning of the year by slashing prices on its vehicles. Elon Musk's group was followed by Ford  (F) - Get Free Report and others. 

These decisions have pushed consumers to seek bargains, while others prefer to wait given the uncertainty about the health of the economy.

"Certainly, what we're witnessing in the macro and what we're seeing in terms of interest rate is ... across the industry, having an effective moderating overall demand," Rivian Chief Executive R.J. Scaringe told analysts during the earnings' call.

A First Profit in 2024?

Rivian has broken with the tradition of giving an update on its preorder book at the end of each quarter. At the end of November, the group had 114,000 orders. The company said it has a "net preorder backlog that extends into 2024."

The base price for the Tesla Model Y SUV is around $54,990 after recent price cuts, Rivian's R1S SUV is priced around $78,000 and Lucid sells its Air Pure sedans for about $87,400.

Another important signal sent by the company is cash. Rivian had cash and cash equivalents of $12.1 billion on hand at the end of December, down from $13.8 billion at the end of the third quarter and $15.5 billion as of June 30. 

At the rate at which Rivian is burning cash, the question arises whether the firm will have to raise additional  capital to finance its operations and expansion by the end of the year.

Perceived as one of Tesla's  (TSLA) - Get Free Report serious competitors, Rivian made a spectacular IPO on Wall Street in 2021, the ninth most guarded IPO in U.S. history. The company was backed by the creme-de-la creme of investors, including Amazon  (AMZN) - Get Free Report and Ford. But its difficulties in ramping up production plunged the company into a nightmare.

The stock fell 82.2%, which translated to $75.3 billion wiped out. It currently trades at around $16.30. It rose as high as $180 back in 2021. At last check on March 1 the stock was trading off 18%.

Rivian, however, sent a positive signal: While the company expects a loss excluding interest and amortization of $4.3 billion this year, it forecasts a profit in 2024, its first.

"We forecast reaching positive gross profit in 2024 and therefore expect that by the end of 2024," the carmaker said.

In 2022, Rivian recorded a net loss of $6,75 billion, compared with $4,7 billion in 2021. Total revenue was $1,66 billion.