Everything seems to be going against Rivian (RIVN).
Until recently the electric-vehicle manufacturer presented as a key challenger to the throne of Tesla (TSLA). But two key stumbles -- involving pricing and production -- have severely clouded Rivian's path forward.
The first: an ill-advised effort to raise the prices of its vehicles, a move applied to customers who have already placed their orders. The backlash was more brutal than the rise in prices.
"I have made a lot of mistakes since starting Rivian more than 12 years ago, but this one has been the most painful," Chief Executive RJ Scaringe wrote to customers early in March. "I am truly sorry and committed to rebuilding your trust."
The other concerns an increase in production rates that hasn't happened. Rivian must manage this crucial step to make the transition from a niche carmaker to a major player.
Tesla not that many years ago found itself in a similarly tight corner. Can Rivian execute the turnaround that Tesla did?
Tough Times in '22
Rivian currently produces three models -- the R1T electric pickup, the R1S electric SUV and the DEV electric delivery van -- at a plant in Normal, Ill.
It currently has the ability to produce 50,000 vehicles a year, but Rivian has said it will be able to manufacture just half that number in 2022. The reason? Rivian points particularly to the supply chains disrupted by the Covid-19 pandemic. That's been worsened in the short term by Russia's invasion of Ukraine. And this year things aren't likely to improve.
"We believe that throughout 2022, the supply chain will be a fundamental limiting factor in our total output for the Normal factory and that our manufacturing equipment and processes would have the ability to produce enough vehicles to deliver over 50,000 vehicles across our R1 and RCV platforms in 2022 if we were not constrained by our supply chain," Rivian said in its fourth-quarter report.
Rivian/Maja Hitij/Getty Images/TS
Against this backdrop, questions about Rivian's future have begun to arise, as the company is missing out on the opportunity to increase its market share.
Demand for electric vehicles is on the rise fueled by soaring gasoline prices at the pump (offset, of course, by recent reports noting how expensive EVs have become).
Rivian can't fully join the move to meet that demand. For now the Irvine, Calif., company must try to satisfy a well-filled order book before it thinks about taking new orders. A customer placing an order for a Rivian vehicle today would have a hard time knowing when it will be delivered.
Comparisons between Rivian and rival Tesla are now circulating. Tesla several years ago found itself in a tight spot, looked to find a major partner and was rebuffed, and then forged ahead to enormous success. The question is: Can Rivian reproduce that magic?
Rivian
Tesla Tried to Offer a Bite to Apple. No Luck.
Tesla has posted losses for some years, managing to become profitable for the first time in the third quarter of 2018.
The Austin company, which went public in 2011, even reached a desperate point, seeking to sell itself to Apple, as Chief Executive Elon Musk himself said in December 2020.
"During the darkest days of the Model 3 program, I reached out to [Apple CEO] Tim Cook to discuss the possibility of Apple acquiring Tesla (for 1/10 of our current value). He refused to take the meeting," the billionaire posted on Twitter on December 22, 2020.
Since then, Tesla has built itself into an EV powerhouse.
Tesla delivered 308,650 vehicles in fourth-quarter 2021, compared with 909 at Rivian. Tesla produced 930,422 vehicles in 2021 compared with 1,015 vehicles at Rivian. Q4 gross margin in Tesla's automotive business was 30.6% against Rivian's negative 709%.
Tesla's operating expenses, which reflect marketing four models and building two more factories, were $2.23 billion in the fourth quarter. Rivian's were $2.07 billion. Rivian will soon begin building its second plant, in Georgia.
At the same time, here's the comparison of the two companies at their same stages of development. (Rivian went public last year). Seen from this angle, Rivian's situation seems stronger.
But notable is that Tesla was developing when the move to electric cars was still in its infancy. Musk's company also benefited from a helping hand from the Obama administration's subsidies.
Rivian on the other hand faces a still growing market but a sharply competitive one, with a number of established carmakers going full bore into the EV sector. And the federal aid that's available for EV buyers is small comfort to consumers when EV prices have risen sharply.
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The Pressure Is On, Wall Street Says
"Since its IPO in late 2021 the Rivian story has been a bad episode out of the Twilight Zone for [Wall] Street," Dan Ives, Wedbush Securities' managing director of equity research, said in a recent note. "The company missed their first quarter out of the box on supply chain issues surprises."
"To say the Rivian story has been disappointing to us" -- and Wall Street -- "so far would be an understatement," the analyst said.
"We believe Rivian from a core engineering and design perspective along with Amazon (AMZN) commercial relationship has potential to be a major EV stalwart over the next decade," Ives said.
Rivian has the deal to provide delivery vans to the Seattle online-retail and tech giant. But it also needs to start delivering cars to average customers.
"At this point we are taking a glass-half-full approach, expecting the company to fix this nightmare situation and emerge a stronger company into the second half of 2022 and 2023 and fulfill its potential with the valuation stabilizing as the company hits its key targets," Ives said.
He also issued a warning:
"One more major PR blunder or meaningful delivery push out for Rivian reservation customers could end the growth story before it began," he said. "Time is ticking for Rivian to show customers, partners, and [Wall] Street its potential, with much pressure now on [Scaringe] and team to finally produce and execute the big vision."
Rivian has a couple of powerful shareholders behind it -- Amazon (AMZN) and Ford (F) -- and lots of consumers want the company's cars.
How long will they remain patient?
