Rivian On Path To Profit Despite Musk's Doubts? Analyst Tells Why EV Startup Can Achieve Goal By End Of Next Year

EV maker Rivian Automotive Inc RIVN has unenviably gained recognition for its ability to burn cash. Nevertheless, the company is gradually reducing losses and charting a path toward profitability.

The First Deliveries: In late 2021, Rivian embarked on its journey of delivering its first vehicles. Throughout the entire year, 920 vehicles were delivered.

However, in the second quarter of this year, the company reached a milestone by delivering 12,640 vehicles while incurring a gross loss per unit delivered of $32,595, down 79.3% as compared to the corresponding quarter of 2022 and down 51.6% quarter-on-quarter.

The R1T begins at $73,000, while the more premium R1S SUV starts at $78,000.

Facing Bankruptcy or Positive Cash Flow: Tesla Inc TSLA CEO Elon Musk warned in June 2022 that both Rivian and Lucid Group Inc LCID might face bankruptcy due to their substantial spending. However, BNP Paribas Exane’s senior automotive analyst, James Picariello, holds a different perspective.

Picariello told Benzinga, “While Rivian's loss per vehicle remains in the tens of thousands of dollars, over the next 12 months, it will implement LFP batteries, its internally developed Enduro drive units (using two internally developed units instead of four outsourced ones from Bosch), and by mid-next year, it will transition to a more efficient 2nd-gen architecture, resulting in a 60% reduction in the vehicle’s ECUs.” 

He also noted that Musk might have an incentive to discourage people from buying vehicles from his competitors.

See Also: Is Rivian Stock (RIVN) a Good Buy Right Now?

Rivian aims to achieve a positive gross profit by 2024, with the senior analyst anticipating the company will reach this goal by the last quarter of 2024, aided by increased production volume. Encouragingly, EV sales data from California, where Rivian is headquartered, for the first nine months of 2023 shows promise.

During this period, a total of 291,518 new Battery Electric Vehicles (BEVs) were registered in California. Although the majority of these were from the EV giant Tesla, Rivian stands out with the most significant year-over-year surge in vehicle registrations, increasing by 176.8% to 6,740 units.

Despite both Rivian and Lucid incurring substantial expenditures this year, Picariello envisions a “clearer path” for Rivian to eventually achieve positive cash flow. In contrast, Lucid has projected a cash burn rate of approximately $900 million per quarter over the next seven quarters, as revealed during the company’s second-quarter earnings call in August.

Picariello said, “Rivian has built a compelling vehicle and has generated significant demand despite the increasingly competitive EV environment, and is now in the process of transitioning from the startup stage to becoming a more mature, profitable automaker.”

Efforts At Cost Reduction: As the company scales its deliveries, Rivian has outlined various strategies to reduce costs, as disclosed in the company’s last-quarter earnings call. 

In addition to the more technical measures highlighted by Picariello, the company has eliminated certain customization options, such as paint and interior choices. Simultaneously, Rivian has introduced options for powertrain configurations and battery sizes.

Picariello pointed out, “We believe this level of optionality, allowing the R1T & R1S to be purchased at a variety of price points add far more customer value.”

According to the analyst, the features that Rivian decided to drop likely contributed to the company’s cumulative profit loss per vehicle to date. Initially, the vehicles were offered with a wide range of products and customization options. 

“So in terms of high feature content and customization, Rivian had established too high of a baseline, which has likely exacerbated their profit loss per vehicle to date,” he said.

Benzinga reached out to Rivian for further comments regarding its cash burn and journey toward profitability. However, the company did not provide specific details in anticipation of its third-quarter earnings call, scheduled for Tuesday at 2 P.M. PT.

Check out more of Benzinga's Future Of Mobility coverage by following this link.

Read Next: Rivian Closing The Gap With Tesla In Premium EV Market: What Data Reveals

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Editor’s note: This article has been corrected to reflect non-GAAP gross profit/loss figures from Rivian’s past earnings. A previous version of this article considered net income for calculation.