Rivian continues to burn cash. Do you have enough to get you through the year?
Why popular electric car manufacturers are having difficulties.
rivian (RIVN -2.25%) It had mixed first quarter results. Vehicles from electric vehicle (EV) manufacturers continue to grow in popularity, but the companies continue to sell them below their cost of making. Given this, the company is understandably burning through a lot of cash because it loses money on every vehicle it sells.
Let’s take a look at Rivian’s most recent quarterly results, what the company is doing to improve its operating performance, and its current cash position.
Mixed Quarterly Results
Rivian reported first-quarter sales of $1.2 billion, up 82% year over year and up 71% from a year ago, delivering 13,588 vehicles in the quarter. It produced 13,980 vehicles, a 49% increase from a year ago.
The company’s 2024 R1S, a three-row luxury SUV, was the best-selling EV in the United States, priced at more than $70,000. Overall, the company was the fifth best-selling EV manufacturer in the U.S., with a share of just over 5%.
The company reiterated its forecast to produce 57,000 vehicles this year.
The company’s problem is that it sells its vehicles for much lower prices than it makes them. During the quarter, the company sold the vehicle for $38,784 less than it cost to build. This comes before any costs associated with selling the vehicle, as well as any corporate or research and development costs. Rivian said this figure was negatively impacted by costs associated with new technology changes, amounting to $9,346 per vehicle delivered.
Overall, Rivian posted a negative gross profit of $527 million and an operating loss of $1.48 billion. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were negative $798 million.
Rivian is doing a great job selling vehicles and growing its business. However, the business is not viable with its current cost structure.
cash outflow
When a company sells its products for less than it costs to make them, it burns a lot of cash. Rivian had an operating cash outflow of $1.26 billion in the quarter. It spent an additional $254 million on capital expenditures (capex), resulting in negative free cash flow (FCF) of $1.51 billion for the quarter.
The company ended the quarter with $7.86 billion in cash and short-term investments. It also had $4.43 billion in debt.
At its current rate of cash burn, Rivian will run out of cash early next year.
However, we are working hard to improve cash flow. This starts with reducing vehicle manufacturing costs. The company has just completed a rebuild upgrade to its manufacturing facility that will increase line speeds by 30%. Additionally, by making some material changes and moving to a zoned network architecture, the number of electronic control units in the vehicle was reduced by 60%.
Accordingly, the company expects to achieve a small gross profit in the fourth quarter. It also reduced its 2024 capital spending guidance by $550 million to $1.2 billion and said it expects to receive $100 million in cash incentives from the state of Illinois to help fund expansion of its plant in the state.
To achieve a reasonable gross profit, quarterly cash outflows would need to be reduced by approximately $550 million. However, this only puts the company’s quarterly outflow rate at about $1 billion at the end of the year. We also expect capital spending to increase slightly to $1.5 billion in 2025.
While its cash outflow issues are improving, Rivian will likely need to raise cash in the second half of 2025. Rivian believes it can become cash flow positive once annual production reaches 215,000 units at its Normal, Illinois facility. Increased capital expenditures for new production capacity.
It already has over $4 billion in debt, so raising equity would likely be in the company’s best interest given high interest rates. However, this will dilute current shareholders.
Image source: Getty Images.
Rivian Investment
Rivian still has a lot of potential. We have a very popular range of SUVs and also offer electric vans. Amazon (AMZN -1.07%) And other companies. Your product is great, but you need to be able to scale it up and manufacture it profitably. The company is also backed by its largest shareholder, Amazon.
This should provide some comfort to investors. While Rivian burns through cash, it’s likely Amazon will step in to support the company to protect its partnerships and investments. Our partnership with Amazon helps us stand out from many other modern EV startups.
In retrospect, Rivian likely went public too quickly and should have at least waited until it made a gross profit. Given its early-stage nature, this makes investing in the company riskier. Rivian will likely have enough cash to get through the year, but at this point, it’s a high-risk/high-reward stock.
