US EV pure play Rivian expects a slump in production and sales in Q1 as it retools its supply chain ahead of the launch of its upcoming R2 SUV.
Amid significant earnings losses and dwindling cash flows, Rivian has urged investors that the R2, a small-body SUV, is the key to eventual profitability for the company.
"R2 represents the essence of our brand while targeting the significant mid-sized SUV segment, a massive market with limited compelling EV options beyond Tesla," says Rivian CEO RJ Scaringe.
Rivian's sales have been hampered by the high price point of the R1 series, but the R2 promises a lower $45,000 price tag. This is approximately equal to Tesla's average transaction price across its whole range in 2023.
However, Tesla is better positioned to continue cutting prices on its vehicles. Rivian, with its already-squeezed margin on the R2, may not be able to match any cuts.
The bet on the R2 means that the company is facing slowing production in the short-term.
"We anticipate the first quarter total deliveries to be approximately 10pc to 15pc below the fourth quarter of 2023 deliveries," CFO Claire McDonough told analysts on the company's Q4 earnings call.
Rivian hopes to bake essential cost savings and efficiencies into its production procedures ahead of its R2 ramp-up, but the required factory updates will necessitate a production shut down in Q2.
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The company will shut down both the consumer and commercial lines in its Normal, Illinois plant for several weeks during the second quarter, as it introduces efficiencies and in-vehicle technologies to the R1 platform.
"We now have the carrot of R2, which is coming next, which has been an enabler for us to get to lower material costs across the board from a commercial context," McDonough says. "We also have the planned engineering design changes that drive ample cost efficiency that will go into the product as part of the Q2 shutdown."
The firm believes these changes will reduce costs and position it to end the year with improved profit margins.
McDonough says that the firm is targeting profitability by the fourth quarter, which will raise eyebrows considering that Rivian registered a loss of $1.1bn for the last quarter and $4bn for full year 2023.
Drastically reduced lithium prices, as well as cost savings unlocked in Rivian's proprietary in-car computers, are also part of Rivian's plan to breakeven on R2 production. The company also confirmed layoffs of 10pc of its factory workforce.
"The largest piece of the bridge left from Q4 2023 to Q4 2024, in which we expect to be modestly positive in gross profit, is variable cost. And so that is enabled by the continued opportunity we have to renegotiate prices with suppliers," McDonough says.
But even with modest profit in Q4, Rivian is still guiding to an annual Ebitda loss of $2.6bn for full-year 2024 – although this would represent a 35pc improvement on 2023's earnings.
Management also reiterated its confidence that the automaker's current liquidity levels can sustain it through to 2025.
Ciaran has written about finance, politics and culture. He is passionate about e-mobility and what it means for our way of life.
Ciaran has a Masters in Ancient Philosophy from Oxford University.
