Rivian has broken new ground with its electric adventure vehicles: can it stay at the top?

Rivian likes to consider itself a pioneer. It was the first to bring an all-electric truck to market and remains one of the few companies selling a three-row electric SUV today. And its EVs are marketed for off-road adventures – literally blazing trails.

But on March 7, Rivian will release its next vehicle, and it probably won’t break much new ground. The Rivian R2 is a compact two-row SUV with a range of about 300 miles and a starting price somewhere around $45,000. It’s not exactly a major disruption by today’s standards, with the Tesla Model Y, Ford Mustang Mach-E and other compact electric SUVs currently dominating sales.

Rivian unveils the R2 at a particularly tumultuous time for electric vehicles

Rivian is also unveiling the R2 at a particularly tumultuous time – for itself and the entire automotive industry. Electric vehicle sales have increased, but growth has slowed significantly as more customers have proven reluctant to make the switch, wary of high prices and the reliability of electric vehicle charging. And Rivian is in a significant cash crunch as costs outpace revenues.

The R2 is a big moment for Rivian – there’s no doubt about it. But that car won’t go into production until 2026 at the earliest, which is crucial this year and next if the company hopes to live long enough to see it.

Last month, Rivian reported its fourth-quarter 2023 earnings, and it wasn’t pretty. The company reported a loss of $1.58 billion for the last three months of the year, bringing its net annual loss to $5.4 billion. It also announced plans to lay off 10 percent of its employees, the third round of layoffs in the past two years.

But it was the production numbers that led to the biggest stock drop. Rivian forecast it would produce just 57,000 vehicles in 2024, lower than the 80,000 vehicles Wall Street had expected and relatively flat from last year’s figures.

But profits were on the horizon, the company promised. A multi-week closure of the Normal, Illinois plant will bring improvements to the R1 line, improving production figures by “approximately 30 percent.” Rivian predicted it would achieve “modest gross profit” in the fourth quarter of 2024.

Investors were doubtful. How can a company that cannot realistically predict production growth expect to compete in an increasingly volatile market? “Rivian’s results continue to be largely disappointing, both in terms of volume and margin growth,” Morgan Stanley wrote in a note to clients.

Add to that the groundbreaking of a new $5 billion factory in Georgia, and you have a recipe for a turbulent year for the young company. (Rivian was founded in 2009, but didn’t come out of stealth until 2018. It made its public market debut in 2021.)

Rivian’s situation is not unique. As noted by Heat mapAccording to Robinson Meyer, the company is currently in what is known as the “EV valley of death,” in which it has scaled up production but is not bringing in enough revenue to cover operating costs.

Welcome to the “EV Valley of Death”

It is a particularly vulnerable period for a young company. And Rivian lacks a financial benefactor with bottomless pockets, as Lucid Motors has with the Saudi Public Investment Fund. Amazon owns a 16 percent stake in Rivian, making it the company’s largest stakeholder. But the company’s influence over Rivian has diminished over time, especially after its “exclusive” van partnership ended last year.

Rivian needs more customers, but that will be difficult as the market cools. Electric vehicle sales are still growing, but Rivian still makes up only a fraction of the total. Tesla – a company that went through its own valley of death phase with the Model 3 and emerged as the most valuable car company in the world – still leads the pack.

Depending on what is released on Thursday, the R2 will certainly draw more attention among Rivian. There will be a lot of free media, which the company can hopefully convert into a significant number of new bookings. But the vehicle itself won’t go into production until 2026. The world may look very different by then.

You don’t need a crystal ball to know that there will be a lot more competition by then. Companies with much more experience in making vehicles for the mass market will have many more electric vehicles for sale. Rivian needs to sell its current generation of vehicles to more customers to survive in the short term.

In terms of cash reserves, Rivian said it had $7.86 billion in cash and cash equivalents at the end of the fourth quarter, up from $9.1 billion at the end of the third quarter. At the current sales rate, the company will likely run out of money before the first R2 even comes off the assembly line.

Older car companies have a slew of combustion engine vehicles to fall back on when times get tough. For example, Ford, GM and others are reporting robust hybrid sales, helping take some of the sting out of the billions they are losing on electric vehicle development and production.

Rivian is known in the industry as a pure EV company, meaning it only makes battery-electric vehicles. No hybrids. No gasoline. Just electrons. That also means no safety net, no safety net. If the EV market stumbles, Rivian will take it squarely on the chin.

Rivian says the entire auto industry is transitioning to electric vehicles, and once that happens, “the opportunities are significant.” That may be true, but Rivian will have to survive for years to come if it hopes to stick around long enough to see that happen.

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