Where is that from? They reported 83k as of 3/8 and they didn't change the prices until 3/1... (And they had 71k as of 12/15/2021.) I can't imagine that they got 20k pre-orders in 7 days.
-
Want to remove ads? Register an account and login to see fewer ads, and become a Supporting Member to remove almost all ads.
All discussion of Rivian Automotive
- Thread starter RobStark
- Start date
Exactly.
The other issue that's starting to come into focus is their unit production cost, which is currently looking to create negative gross margins:
- Best case: Assume Rivian can produce 25k trucks this year with zero growth of Cost of Revenues. That means they need to produce around (25k-2.5k)/3 = 7,500 trucks per quarter for the next three quarters. So we're assuming they can scale by a factor of 3x and they will somehow find efficiencies to offset all increased labor and parts costs of a 3x scaling. Even with that completely unrealistic assumption, $597M COGS divided by 7.5k trucks produces a unit cost of $79.6k. That's greater than last quarter's (pre-price adjustment) ASP.
- More realistic case: Assume that Rivian's cost structure is some fixed cost plus some marginal cost per truck (a simple linear model). Now that we have two quarters of reporting we can make some estimates here. Recall that FY22Q1 production was 2553 trucks, and all of FY21 was 1015 (almost all of which were produced during Q4). Cost of revenues in 21Q4 was $437M and $597M in 22Q1. From those numbers we can model a marginal unit cost of $104k and a quarterly base cost of $331M ($1.3G annualized).
That seems like a problem given the prices I see on the website today. In fact, just the incremental unit cost of $104k seems like a problem. The only way I can see the R1 being a profitable business is by simultaneously reducing marginal costs by 30% and ramping production to a quarter million per year and raising prices again. Impossible? No. A tall order? Definitely.
This is the point where I would bring in Tesla as a comparison. Rivian started production in 2021Q3. Two quarters later, they are reporting a gigantic gross loss. Tesla started Model S production in 2012Q2. Two quarters later, they reported a gross profit (with margin of ~8%).
So this is where I would strongly disagree with RobStark. I don't think criticism of today's Rivian is at all similar to criticism of last decade's Tesla.
#TSLAQ made hay of the fact that Tesla didn't sell enough cars to offset SG&A, R&D and CapEx. Rivian has a completely different and more fundamental problem: The more trucks they sell, the more cash they burn--Rivian would increase cash burn by $1G per year if they sold 50k trucks at an ASP of $100k with my assumed cost structure! Maybe my cost structure is wrong, but I'd want to see some evidence of that before buying RIVN.
But Tesla started production in 2008. They kept raising prices from $100k to $119k in were still under water.
Rivian walkback on raising prices was a mistake IMO.
Unlike Tesla, at launch Rivian has a charging network creation/installation team.
Unlike Tesla, a couple of months after start of production they announced factory number 2..
Unlike Tesla, a couple months after production they are already funding their own autonomous software program.
Unlike Tesla, a couple of months after production they are funding a program to make their own cells.
None of those explain their gross loss on vehicle sales. I don't see any of those things as a positive right now. They are trying to run before they have learned to walk... If they can make it all work and get past the ramp up period it will put them in a great place, but at this point it is making their chance of success much less likely.
It is very likely that Tesla would have started a lot of that earlier if they had received $20B in cash from their IPO, but that wasn't possible back then. There are two reasons that Rivian was able to get that much money:
- Tesla showed that it was possible to be successful.
- This is sort of controversial: they kept their pricing and production predications going into the IPO even though they knew they wouldn't be able to keep/meet them.
Company net profit is impacted by the items you listed, but that's not what was being discussed.
Tesla vehicle production (gross profit) was positive in 2009. Tesla cars were selling for a profit, Rivian cars are selling for a loss.
Yes they do.
You have expenditure and You have revenue. Those are the hard points.
Within that and a "reasonable" standard accountants can tell the story they wan to tell.
The field isn't empty as in 2008.
Additionally, Rivian launched with 2 vehicles. With a third coming soon.
R1T and R1S are very similar but not exactly the same.
Last edited:
No, they don't
>Unlike Tesla, at launch Rivian has a charging network creation/installation team.
SG&A / CapEx
>Unlike Tesla, a couple of months after start of production they announced factory number 2..
CapEx
>Unlike Tesla, a couple months after production they are already funding their own autonomous software program
R&D, SG&A
>Unlike Tesla, a couple of months after production they are funding a program to make their own cells.
R&D, CapEx
Unlike Tesla, their cost of revenues is higher than their revenues. Big factory, low volume
No, the hard points we are talking about are "revenue" and "cost of revenue". We aren't looking at any of their other expenses: CapEx, SG&A, R&D, etc. If we included those the loss would be $1.3M per vehicle, instead of $409k per vehicle.
Nothing they spend on the charging network, second factory build, ADAS development, cell development, etc. are included in the "cost of revenue".
Cost of revenue includes things like parts, labor, depreciation on buildings/tools/equipment, etc. But only for things/staff that are used to make production vehicles.
Last edited:
Yeah I agree with Mongo, MP3Mike and NickInLab. Rivian is playing a very dangerous game. They are acting like everything will continue to keep going right for them, when, if you want to be brutally honest, pretty much the only thing they've done right was to design three great EVs in great market segments. They also did a great job at raising money.
The things they've done wrong is a much longer list.
They initially had a horrible go to market strategy and wasted at least seven years on that (their ICE vehicle). When they settled on the EVs, they spent a huge amount of time getting it to production with multiple delays. Then they decided to run before they could walk, deciding to produce THREE brand new vehicles out of the same plant at the same time, in a high volume manufacturing facility. Hoo boy. That's a recipe to chew through tons of cash. Then they shot themselves in the foot with their price roll back. That's a $1B down the drain. I'm sure shareholders loved that decision - the lawsuits that will be created for that one will be a drag against the company for a long time. They inexplicably keep on spending money on sales and marketing when the vehicles will sell themselves and they have a 3 year backlog of orders. They spend money on direct to home vehicle delivery when they can't afford it. They spend money on a charging network when they don't have enough cars to support it. They are dividing executive resources to build a second plant before the first one is operating correctly.
I could go on, but I don't have all day. My point is that their history suggests they'll continue making dumb mistakes until they are forced to be smart as the money starts to run out. By the way, their stock market value truly sucks right now. So good luck raising more cash as we are likely to enter into a recession.
So, yeah, as promising as Rivian sounds with $17B cash in the bank, there's nothing I see that gives me confidence that they'll turn this cash burning ship around. Can they turn it around? Of course, but will they? Show me some smart decisions to make me think they can do it...
The things they've done wrong is a much longer list.
They initially had a horrible go to market strategy and wasted at least seven years on that (their ICE vehicle). When they settled on the EVs, they spent a huge amount of time getting it to production with multiple delays. Then they decided to run before they could walk, deciding to produce THREE brand new vehicles out of the same plant at the same time, in a high volume manufacturing facility. Hoo boy. That's a recipe to chew through tons of cash. Then they shot themselves in the foot with their price roll back. That's a $1B down the drain. I'm sure shareholders loved that decision - the lawsuits that will be created for that one will be a drag against the company for a long time. They inexplicably keep on spending money on sales and marketing when the vehicles will sell themselves and they have a 3 year backlog of orders. They spend money on direct to home vehicle delivery when they can't afford it. They spend money on a charging network when they don't have enough cars to support it. They are dividing executive resources to build a second plant before the first one is operating correctly.
I could go on, but I don't have all day. My point is that their history suggests they'll continue making dumb mistakes until they are forced to be smart as the money starts to run out. By the way, their stock market value truly sucks right now. So good luck raising more cash as we are likely to enter into a recession.
So, yeah, as promising as Rivian sounds with $17B cash in the bank, there's nothing I see that gives me confidence that they'll turn this cash burning ship around. Can they turn it around? Of course, but will they? Show me some smart decisions to make me think they can do it...
Well said, you mirrored all of my concerns.
And I want Rivian to make it, I simply don't think they WILL make it based on their decisions and performance thus far. I don't own any shares, but if I did I'd be very worried.
But that is really small potatoes at this point. They are spending almost half a million dollars to make each R1T that they are selling for ~$80k. Even if they didn't roll back the ~$15k price bump they would still be losing $394k per R1T sold.
If they continue at this rate selling ~42k vehicles would completely use up their $17B cash on hand, not even counting all of their other expenses.
Just selling the 20k additional vehicles that they say they will produce this year would burn $8B in cash. They have to fix this ASAP. We don't have the details on why it costs them so much to make a vehicle, so we really don't know if there is a chance they can fix it. (Are they paying production staff too much? Are they having to scrap too many parts/vehicles? Are their parts just too expensive? Is their factory rent too expensive?)
What we do know is that they committed to buying more parts than they can use, and they are paying penalties to not buy them. That leads me to think that they don't think they can afford to buy and store them for use after they ramp. They went big on their orders, and they are paying the price now.
Brando
Active Member
Suspect Rivian is worth a gamble. Only bet what you are willing to loose.
The main reason their cogs is so high is that they have a factory capable of producing 150k vehicles per year and their current run rate is a small fraction of that so factory overhead expenses are eating them alive.
To be fair, for startups you really need to bird dog cash burn. P/L statements will usually look horrific. On a cash burn look, they have several years of cash, assuming they don’t really have negative cash cogs margins.
Regardless, I would like to see some smart decisions coming out of Rivian.
True story, I ended up at a lunch with a Rivian BOD guy by chance two days after they decided to roll back their price increases. Obviously he was guarded and didn’t say anything significant other than he was proud of the decision to do the roll back. I don’t think I made a friend that day since I made it clear I thought it was a stupid decision. I had a few glasses of wine in me at that point, so I wasn’t exactly being diplomatic
Edit. While I’m no slouch when it comes to having done well financially in life, that guy is probably 10x of my my net worth so who am to talk.
Yah, only variable costs scale with production. Fixed costs decrease per vehicle as production ramps. So doing a straight loss per vehicle * production isn't accurate. Need to back calculate production*(sales price - BOM) - fixed costs. However, in a worst case situation, the sales price is lower than the BOM. In which case, more vehicles will result in more losses even though the loss per car is less.The main reason their cogs is so high is that they have a factory capable of producing 150k vehicles per year and their current run rate is a small fraction of that so factory overhead expenses are eating them alive.
To be fair, for startups you really need to bird dog cash burn. P/L statements will usually look horrific. On a cash burn look, they have several years of cash, assuming they don’t really have negative cash cogs margins.
Regardless, I would like to see some smart decisions coming out of Rivian.
True story, I ended up at a lunch with a Rivian BOD guy by chance two days after they decided to roll back their price increases. Obviously he was guarded and didn’t say anything significant other than he was proud of the decision to do the roll back. I don’t think I made a friend that day since I made it clear I thought it was a stupid decision. I had a few glasses of wine in me at that point, so I wasn’t exactly being diplomatic
Edit. While I’m no slouch when it comes to having done well financially in life, that guy is probably 10x of my my net worth so who am to talk.
Same deal with net profit, OpEx doesn't scale linearly and is an offset on profit.
Sure, but given the choice I'd rather just put more money into TSLA where I have extreme confidence my investment will securely grow.
That said, if Rivian survives the transition into profitability and I think they are going to make it, then I could see a nice R1T possibly in my driveway someday. Once I'm confident the company would be around in the future to service it for us.
Doggydogworld
Active Member
I'm usually a big fan of this type of number crunching, but I think it's premature here. If I were to wade in, I'd start by subtracting the 188m expense for inventory writedown/firm purchase as that won't be part of their long term cost structure. That gives us a ~400m starting point. I'd very roughly break that down as:
100m depreciation -- Of 118m total
100m labor -- assume fully staffed, 5k of 11.5k total employees on 1/1/22
100m parts/mat'l -- 80k per vehicle nominal cost (excludes the writedown/firm commit charge)
100m ???? -- scrap/rework, equipment recalibration, OT, employee training, off-site meetings in Cancun?
The first two are mostly fixed, spread over 40k vehicles a quarter vs. 1.25k they reduce from 160k per to 5k. The last two are pure guesses. I figure their nominal parts/materials must exceed 60k or they wouldn't have raised prices. But they must at least have a path to sub-100k, otherwise it would be a disclosure item. And I just don't see what would drive it to something crazy like 2x Taycan.
Finally, I don't think there's any way to compare vs. Tesla startup. Rivian is launching three vehicles almost simultaneously and planned to ramp 2-3x faster than Tesla. Rivian's IPO and go-to-market environment was also completely different -- investors cared only about speed and not at all about costs.
Rivian is acting like a company that expects to raise more capital after opening the Georgia factory. For example, they continue to build out DCFC that will have few users due to limited production. The board members representing the large investors know the financials. Large investors expecting to further fund the company would prefer a low share price in 2-3 years.
When Georgia open if the R1 is still has a backlog, EVD is well regarded, and the new R2 has good preorders then raising capital will probably not be a problem.
The Rivian strategy of not making small plans has been correct so far. New EV companies with smaller plans funded through SPACs don't look like they will be sufficiently capitalized to achieve the mass needed for a high valuation.
When Georgia open if the R1 is still has a backlog, EVD is well regarded, and the new R2 has good preorders then raising capital will probably not be a problem.
The Rivian strategy of not making small plans has been correct so far. New EV companies with smaller plans funded through SPACs don't look like they will be sufficiently capitalized to achieve the mass needed for a high valuation.
They're in the same space, on their about page:
"The scale of the challenge is enormous, but we're lucky to be a part of this — to be able to help solve how we shift our planet’s energy and transportation systems entirely away from fossil fuel."
RJ Scaringe
More: Our Company - Rivian
They know the problem at hand (ie sustainability) and are mission driven. It's directionally similar to Tesla. I would say they're part of the pole, not the spearhead, and Rivian knows it. In that sense, finances and money are a means to an end, but you can compare the two companies on the mission level. As such, the company strategy might be different and efficacy of what they're trying to do, but you cannot kibosh or put stop energy on a company thats mission and directionally aligned with an extreme success case for a mission we all care about in a market that everyone says needs to happen across many, if not all, parts of society.
Rivian does have an excellent product; One test drive and you’ll realize the R1T it’s hard to beat, the R1S should be great too.. Now the hard part begins and hope they don’t compromise or be cheap.
