Rivian hails Enduro cost savings

Californian EV manufacturer Rivian is seeing a 35pc cost reduction after it retooled its electric delivery van (EDV) to run on its own Enduro motors. And it promises a similar magnitude of savings when a production shutdown next year allows it to fully switch over its R1 vehicles too, a key component in its vision of moving to profitability.

“The substantial reductions in EDV material costs driven by the introduction of the LFP pack and Enduro drive unit is reflective of the material cost improvements we expect to experience with our R1 platform following the 2024 shutdown to reroute the R1 line to 85,000 units/yr and introduce new technologies,” says Rivian CFO Claire McDonough.

But the firm is aiming to make additional savings prior to then, not least because the firm has already “successfully integrated [the Enduro] into the dual motor variant of the R1 platform during the second quarter”, says CEO RJ Scaringe. Rivian has “continued extreme focus on cost efficiency as we accelerate our drive towards profitability”, he continues.

Better margins

In Q2, on a quarter-on-quarter basis, gross profit per vehicle improved by c.$35,000. McDonough characterised it as a 44 percentage point growth margin improvement. “We achieved meaningful reductions in both R1 and EDV vehicle unit costs across the key components, including material costs, manufacturing, labour, overhead, and logistics,” says Scaringe.

“A portion of [better profitability] is absolutely the fixed cost absorption improvements that just are born out of increased volume,” the CEO admits. Rivian Q2 production saw a 50pc increase over Q1, while deliveries have increased by 59pc. In total, Rivian produced 13,992 vehicles in the quarter, and 12,640 were delivered, making up the bulk of $1.1bn in revenue.

But a “a really important element” of it is also a reduction in Rivian’s bill of materials, Scaringe stresses. “There is a whole host of ongoing commercial negotiations, some of which we are already beginning to feel and see on R1, and many of which are going to be coming,” he says.

“When we talk about the confidence we have around further reductions in cost, this is not confidence out of thin air,” the Rivian chief continues. “This is confidence that ties to contractual obligations associated with these component changes, as well as contractual obligations with our suppliers built into commercial negotiations.

"And we will continue to see significant improvements quarter-over-quarter in the cost structure to build our vehicles ultimately laddering up to the margin targets we talked about, the 25pc gross margin target for our Normal facility.”

There is, though still some way to go to positive gross margin, which the company now forecasts for 2024. Q2 Ebitda losses were $412mn, compared to $704mn in the same period last year. The company still projects a year-end Ebitda loss of $4.2bn.

“The R1 will be contribution margin positive by the end of this year… through continued progress on supplier contract negotiations, as well as some of the upside to price as we introduce the max pack variant later this year,” adds McDonough.

Changing production mix

The firm’s production ramp — it is now forecasting production of 52,000 vehicles for 2023 as a whole — should help profitability in ways other than just diluting the per vehicle impact of fixed costs. For one thing, it has now opened discussions with EDV core customer — and Rivian shareholder — Amazon to accelerate selling the vans outside of Amazon’s exclusivity agreement,

“We are also […] actively working with Amazon to allow us to sell vehicles outside of Amazon sooner than what was originally contemplated in our contract. And so that work remains ongoing. We are very optimistic on that work,” says Scaringe.

An evolving R1 vehicle mix is also helping. “Approximately 70pc of the R1 units produced during the second quarter were R1S [SUV] vehicles. This represents the first time R1S quarterly production was higher than R1T [e-pick-up] production,” the CEO continues, adding that he expects this mix to be maintained going forward.

R1S build efficiency is now “essentially equal” to R1T. And, crucially, in Scaringe’s words, “ it is also important to note the R1S is more profitable than the R1T”.