Rivian Automotive(RIVN 0.18%) has more of its vehicles on the road than ever before. If you live in one of the cities where Rivian’s electric delivery vans are operating, the company looks like it’s thriving. But Rivian is yet another example of why a company’s perceived popularity and its stock price are different.
Rivian has lost half of its value so far in 2024. Last week was particularly brutal, as Rivian’s fourth-quarter and full-year 2023 earnings release unleashed a rampage of selling, with the stock falling over 36% in the three-day period between Feb. 21 and Feb. 23.
Let’s determine if the electric car company’s investment thesis is officially broken or if the Rivian sell-off has gone too far.
Image source: Getty Images.
The momentum is gone
Rivian just lost the one tailwind it couldn’t afford to lose — production growth. Production is now expected to be flat year over year, which is terrible news for Rivian because its manufacturing expansion now looks excessive and unwarranted.
Here’s a look at what Rivian has produced and delivered since going public.
Metric
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Q4 2023
Production
1,003
2,553
4,401
7,363
10,020
9,395
13,992
16,304
17,541
Deliveries
909
1,227
4,467
6,584
8,054
7,946
12,640
15,564
13,972
Data source: Rivian.
Its run-rate production as of Q4 2023 was 70,164 vehicles per year. However, its 2024 production guidance calls for just 57,000 vehicles, which is an average of 14,250 per quarter.
Part of the reason for the slowdown is that Rivian is shutting down its passenger vehicle and commercial vehicle production lines during the second quarter to improve plant efficiency and boost production rates by 30%. But even if you assume Rivian produced no vehicles for an entire quarter, 57,000 units over three quarters is still just 19,000 units per quarter — which isn’t exactly the increase investors were looking for relative to Rivian’s record Q4 2023 production.
An added problem
Rivian’s muted production forecast isn’t solely due to production changes, it is also due to demand challenges. To quote the shareholder letter:
For 2024, we expect our total deliveries to be derived from our existing order bank as well as new orders generated during the year. Our full year targets rely on an improvement in order rate driven by our planned go-to-market strategies. The conversion of our existing order bank to sales can be impacted by several factors including delivery timing, location of order, monthly payments, and customer readiness. Our order bank has notably reduced over time as deliveries more than doubled in 2023 versus 2022, and we have incurred cancellations due to macro and customer factors.
Rivian talked at length about customer demand during its earnings call. Rivian is addressing demand challenges with a focus on its brand, including opening more showrooms and offering test drives. That sounds like high sales, general, and administrative expenses to me.
Rivian is guiding for an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $2.7 billion for 2024 and capital expenditures of $1.75 billion compared to an adjusted EBITDA loss of $3.98 billion and capital expenditures of $1.02 billion in 2023. 2022 capital expenditures were $1.4 billion.
Rivian is guiding for its highest capital expenditures in three years during a time when it is pledging cost cuts and operational improvements. The investment may pay off, but now seems to be a time when Rivian needs to be more careful with its spending.
It’s also worth mentioning that Rivian’s gross margin was negative 46% in Q4 2023 compared to negative 36% in Q3 and negative 37% in Q2 2023. So Rivian has a lot of work to do to reverse the downward trend and get its margins profitable by the end of the year.
Rivian isn’t giving investors what they want
The main issue with Rivian is a lack of meaningful cost-cutting and too much focus on the long-term story. Normally, an investment thesis focuses on multiyear, sometimes multidecade concepts. That certainly applies to Rivian, electric passenger vehicles, and electric commercial vehicles. But Rivian isn’t profitable, and it isn’t expected to be profitable in the near term.
It has made sizable long-term manufacturing investments by assuming exponential growth in demand. As Rivian said during the Q4 earnings call, it is transitioning from a business that was merely fulfilling a multiyear order backlog to having to go out and get new demand for its vehicles. That transition doesn’t seem to be going poorly per se, but it is coming at the added cost of marketing expenses.
Investors who hoped 2024 would be a year of major cost reductions, margin improvement, and sustained growth have been disappointed. 2024 adjusted operating expenses are expected to be approximately flat compared to 2023 while capital expenditures are expected to be over 50% higher than last year. There is 0% forecast production growth. And it looks like the company will simply deplete its cash reserves even further with too little to show for it.
A single quarter may not matter as much for a proven company with a track record spanning several decades, but it does for Rivian. Many investors are running for the exits, and it’s easy to see why.
The Rivian investment thesis isn’t entirely broken, but it has become more speculative than in the past. Rivian has always been a high risk/high potential reward company. But at least it had production growth and the prospect of near-term cost-cutting to back it up. Neither of those factors are there now to support the investment thesis. Rivian is promising production growth and significantly lower costs in 2025, but it isn’t providing investors any reason to give it the benefit of the doubt.
Investors who have been waiting to buy Rivian and believe in the long-term growth story are getting their best chance yet. Expect it to be a very bumpy ride for Rivian until it gives investors something to cheer about. For most investors, it is probably best to wait to buy Rivian until it shows clear signs of a turnaround.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
