All discussion of Rivian Automotive

[MP3Mike]

Yes. Pick your own metric.

Well until you get gross margins positive there really is no point in looking at numbers further downstream.

So... do we know what Rivians gross margin is?

Of course, they report the numbers every quarter, for Q3 it was -36%.

 

[Cosmacelf]

Yes. Pick your own metric.
So... do we know what Rivians gross margin is?

No, it isn't "pick your own metric". I specifically talked about gross margins and then you tried to change the subject to EBIT. Take the loss and move on Sheesh.

Rivian gross margin in 23Q3 was -477/1337 = -35.6% as per the 10Q.

If you want to make it look even worse, look at their operating margin.

BTW, looks like the market agrees with my take since Rivian stock price is down 3.3% currently post yesterday's release. If management can't say when they will be positive gross margins when directly asked, like even WHICH YEAR, then that is a big effing red flag. Note that they did not venture to guess whether they would be positive gross margins even after their factory retooling next year.

People here and elsewhere tried to downplay Rivian's recent $1.5B bond placement as no big deal. The reality is that they are anticipating needing the money (even though they had $9B in the bank before the raise) and wanted to get a bond offering out before interest rates when up even higher.

Edit: Incidentally, that bond offering isn't free money - it costs them interest which affects operating margin and makes their negative earnings even worse.

 

[Unclepaul]

Sandy Monro said that the Rivian was a remarkable vehicle, but under priced. He is a specialist in tearing down vehicles and determining their cost of production. Said that there was no way that Rivian could build their vehicles for the prices they were charging and remain in business.

Right now Rivian is working hard to reduce their costs, but many of their sales are made as customers realize that they are great deals and good value. As the pricing goes up, those buyers will go away.

Currently Rivian is simply burning through investor money, hoping they can find a financially viable way to remain in business.

This is similar for most of the Chinese EV makers. They are losing $ on every car they build, but getting rich on the money they are getting from their investors and the Communist Government.

Meanwhile, Tesla has turned the corner. They are perhaps the most efficient and profitable automaker on the planet. Their factories quickly become cash cows, providing the funding to build even more factories.

Stelantis and Ferrari also seem to have found the secret sauce, and are making money every day.

 

[ggies07]

Meanwhile, Tesla has turned the corner. They are perhaps the most efficient and profitable automaker on the planet. Their factories quickly become cash cows, providing the funding to build even more factories.

And yet, somehow the market will not value Tesla correctly...

 

[Cosmacelf]

And yet, somehow the market will not value Tesla correctly...

TSLA is actually pretty highly valued based on current operations. It just isn't valuing the future stuff that we all think is going to happen very highly.

I mean, TSLA valuation is $700B vs Rivian's $15B. It takes a lot of future stuff to move TSLA price higher...

 

[Doggydogworld]

It was an interesting conference call. When asked point blank about things like when will margins be positive, or when will you finally get to the end of selling your vehicles at that stupid discount, they simply wouldn’t hazard a guess.

Quoting directly from the shareholder letter:
"Furthermore, we forecast reaching positive gross profit in 2024."

The negative 477m gross profit is almost entirely due to 452m in LCNRV writedown and firm purchase commitment loss. This primarily comes from over-ordering parts based on an over-aggressive ramp plan. Phasing out of these old contracts is the main factor in their plan to reach gross profit breakeven:

",,,, and therefore expect that by the end of 2024, we will not have material LCNRV inventory charges associated with goods manufactured at our
Normal facility."

Rivian has not ramped nearly as fast as planned, but they still ramped twice as fast as Tesla. And they sell four vehicles on two different platforms while at this point Tesla still sold only one vehicle. That's very expensive approach, but they entered a much more competitive market so maybe it's the right choice.

FWIW they also said R1 will be contribution margin positive at the current price points by year end. The vans are already contribution margin positive.

Oh, and Amazon won’t be taking deliveries of the commercial van in Q4,

They said they'll take a fraction of Q3 deliveries, not zero. Sounds like AMZN buys a lot of vans in Q3 to prepare for the holidy rush, then Q4 is all hands on deck delivering packages. Capital and expansion projects then restart in Q1.

And I think I heard the R2 platform won’t be ready until 2026?

Year-old news.

Rivian Pushes Back R2 Platform To 2026, Has 114,000 R1 Preorders

Rivian's Q3 2022 earnings report reveals an operating loss of $1.72 billion and revenue of $536 million; the company had $13.8 billion in cash at the end of Q3.

insideevs.com

Edit: Incidentally, that bond offering isn't free money - it costs them interest which affects operating margin and makes their negative earnings even worse.

Interest doesn't affect operating margin.

I agree it's frustrating when they dodge simple, direct questions. But that's pretty standard in the corporate world. Tesla execs do the same, except Musk sometimes will actually answer the question asked. (And sometimes go completely off on an unrelated tangent, lol.)

 

[Cosmacelf]

Quoting directly from the shareholder letter:
"Furthermore, we forecast reaching positive gross profit in 2024."

Thank you and ugh, that's what I get by listening to the CC while driving and not reading the shareholder letter. That's not an actual earnings profit, but at least they'll have positive gross margins. It took Tesla quite a while to be earnings positive as well.

The negative 477m gross profit is almost entirely due to 452m in LCNRV writedown and firm purchase commitment loss. This primarily comes from over-ordering parts based on an over-aggressive ramp plan. Phasing out of these old contracts is the main factor in their plan to reach gross profit breakeven:

",,,, and therefore expect that by the end of 2024, we will not have material LCNRV inventory charges associated with goods manufactured at our
Normal facility."

Rivian has not ramped nearly as fast as planned, but they still ramped twice as fast as Tesla. And they sell four vehicles on two different platforms while at this point Tesla still sold only one vehicle. That's very expensive approach, but they entered a much more competitive market so maybe it's the right choice.

FWIW they also said R1 will be contribution margin positive at the current price points by year end. The vans are already contribution margin positive.

So, do you have more color on this excess inventory? Did they actually throw away inventory, or was it an accounting write down, meaning, what exactly?

I'm guessing here, but did they do something like order inventory for 100K vehicles and now realize that many of those parts won't be in the revamped retooling? Just wondering the mechanism on how you can evaporate $452M in one quarter regarding inventory.

I agree it's frustrating when they dodge simple, direct questions. But that's pretty standard in the corporate world. Tesla execs do the same, except Musk sometimes will actually answer the question asked. (And sometimes go completely off on an unrelated tangent, lol.)

True, on both points.

 

[mspohr]

If management can't say when they will be positive gross margins when directly asked, like even WHICH YEAR, then that is a big effing red flag. Note that they did not venture to guess whether they would be positive gross margins even after their factory retooling next year.

From shareholder letter:
"Furthermore, we forecast reaching positive gross profit in 2024"

 

[Doggydogworld]

So, do you have more color on this excess inventory? Did they actually throw away inventory, or was it an accounting write down, meaning, what exactly?

I'm guessing here, but did they do something like order inventory for 100K vehicles and now realize that many of those parts won't be in the revamped retooling? Just wondering the mechanism on how you can evaporate $452M in one quarter regarding inventory.

They don't disclose enough detail to know. They don't take delivery of excess parts, they instead pay contractual penalties when they fall behind schedule on custom or semi-custom parts. That lets those vendors recover upfront costs that were supposed to be spread over higher volume. That was 160m of the 452m. You also lose volume pricing on commodity items, which can add 10-50% over the price you budgeted. That goes into COGS, which normally just decreases your gross margin. But if your gross margin is negative, you have to write down inventory at EOQ to reflect actual vehicle sale price. That includes vehicles in inventory plus parts and materials that will go into vehicles next quarter.

Even fixed price absorption gets into the act, since it adds to inventory carrying value and thus increases the LCNRV write-down. And the size of the writedown varies as your inventory fluctuates. So there are lots of moving parts. I've tried to conjure up a crude mental model with some non-silly numbers for each component, but there just isn't enough disclosure. Someone in the business could probably make some educated guesses.

 

[mspohr]

This is interesting...

Before the R2 platform comes out, Rivian is doing some major retooling to improve the R1 platform The R1T and R1S are made at a plant in Normal, Illinois, which will go down for a week of prep work in December before the major shutdown for retooling in the second quarter of 2024.

When the plant ramps up again, the vehicles will have new technology and been simplified with 25 percent shorter wiring harnesses, consolidated control units, and advancements in body structure and battery pack. Less materials and ease of assembly will bring down the cost by about 35 percent.

https://www.motortrend.com/news/rivian-r2-reveal-r1-improvements-van-news/

 

[Singuy]

From shareholder letter:
"Furthermore, we forecast reaching positive gross profit in 2024"

Slow clap for a company able to achieve a positive gross margin 15 years after inception. What can go possibility go wrong?

Tesla reached a positive gross margin 4 years after their inception when they sold the roadster 1.0 and even a 1M dollar net margin 5 years after inception(just on car sales).

What many legacy and competitive EV companies have seen is that demand has been initially great but then drops off a few quarters in segments Tesla is in. Rivian is enjoying a period with near zero competition. Early adopters have already lined up for the truck. If we see sale drops in any shape or form like Lucid after the CT are taking over, then good luck. That 9B dollars will be chewed up extremely quickly especially since they have a high risk system going on with 4 different products going at the same time.

I honestly don't understand the reason for owning the stock. It's not the next Tesla because it lacks all the call options associated with Tesla(bots, FSD, Energy, Charging network). Even if due to some miracle Rivian turns a net profit in 2026 or something, it's valuation will still be like crap like all the Chinese companies that have not only a positive gross margin but have hit net margins already. Polestar turned a positive gross margin a while back with currently a 4B dollar valuation. So literally people own Rivian due to hoping for Amazon to buy them out or they will be saved by them and no other reason.

Tesla Finally Turns A Profit

Tesla Motors says it earned a profit last month, the first time the Silicon Valley automaker has run in the black since its founding in 2003. The company earned $1 million on $20 million in revenue in July after shipping a record 109 Roadsters. It attributed the profit largely to improved...

www.wired.com

 

[Todd Burch]

Cannot confirm personally but it looks like Rivian may have accidentally pushed a software update that may have physically damaged vehicle components:

https://x.com/riviansoftware/status/1724260632105513440?s=46&t=R_g6UcBGMbSJ4nT8ukg1ZA

 

[mongo]

Cannot confirm personally but it looks like Rivian may have accidentally pushed a software update that may have physically damaged vehicle components:

View attachment 990575

https://x.com/riviansoftware/status/1724260632105513440?s=46&t=R_g6UcBGMbSJ4nT8ukg1ZA

Might not be physical damage, could be that the wrong security certificates broke OTA updating.

 

[Cosmacelf]

Ugh. I started my update last night and went to bed to wake up to this thread. The Rivian forum says Rivian is telling everyone who tried the update, which will fail, to leave the car alone and to not drive it while they work 24x7 trying to figure out a solution. It is drivable, just with basic speedo and no backup cam. Giant mess.

 

[mongo]

Final approval received for Georgia plant. Inital 200k/yr capacity, doubling by 2030.
Rivian Secures Final Approval For Georgia Plant, Borrows $15 Billion

 

[Cosmacelf]

Ugh. I started my update last night and went to bed to wake up to this thread. The Rivian forum says Rivian is telling everyone who tried the update, which will fail, to leave the car alone and to not drive it while they work 24x7 trying to figure out a solution. It is drivable, just with basic speedo and no backup cam. Giant mess.

I finally checked my truck and apparently the update failed before it started since the truck is fine, and on the old revision. I've never been so thankful of a failed update before!

 

[Cosmacelf]

Final approval received for Georgia plant. Inital 200k/yr capacity, doubling by 2030.
Rivian Secures Final Approval For Georgia Plant, Borrows $15 Billion

The structure of this financing is a bit convoluted. Link to the SEC filing. And spoiler alert: This is NOT Rivian borrowing $15B.

First, this is all as a result of the Economic Development Agreement with these parties:

As previously disclosed, Rivian Horizon, LLC, a subsidiary of Rivian Automotive, Inc. (the “Company”), the State of Georgia (the “State”) acting by and through the Georgia Department of Economic Development (the “GDEcD”), and the Joint Development Authority of Jasper County, Morgan County, Newton County and Walton County (the “JDA”, and together with the State and the GDEcD, the “Public Parties”) entered into an Economic Development Agreement, dated as of May 2, 2022 (as amended by the First Amendment dated September 26, 2023, the “EDA”), pursuant to which Rivian Horizon, LLC agreed to build an electric vehicle manufacturing plant in Georgia.

Rivian will actually rent the land and all buildings and machinery for the Georgia plant:

the Company will rent from the JDA land in Morgan County and Walton County, Georgia, and buildings, machinery and equipment for the operation of the Company’s electric vehicle manufacturing plant

This will all be financed by a series of taxable bonds that the JDA issues:

the JDA agreed to issue its taxable revenue bonds in a maximum aggregate amount of up to $15.0 billion (the “Project Bonds”) to fund the costs of the Project to promote economic development and job creation, and to facilitate a property tax incentive for the Company, and the Company has agreed to acquire, construct, improve and install the Project, and to expend on the Project an amount the greater of $5.0 billion (the “Minimum Investment Commitment”) or the amount of the Project Bonds issued for the development of the Project. Pursuant to the Bond Purchase Agreement, the JDA has agreed to sell to the Company, and the Company has agreed to purchase from the JDA, the Project Bonds, as they are issued.

So, wait, the company now buys the bonds from the JDA? So Rivian is actually financing the plant afterall.

Under the terms of the Rental Agreement, the Company, as tenant, enjoys use and occupancy of the Project, subject to certain requirements and restrictions. The Company, as tenant, will make rental payments under the Rental Agreement for the use of the Project in amounts sufficient to allow the JDA to pay the principal and interest on the Project Bonds as they are due to the Company, as purchaser and holder of the Project Bonds. Since the Company is both the tenant and bondholder, such principal and interest payments may be constructively made and may be deemed to be made when due.

So the JDA, as the bond issuer, pays interest and principle for the bonds to the bondholder, which is Rivian. And Rivian pays rental payments to the JDA to cover those same costs. So this paragraph above says that these payments cancel each other out and no monies are actually exchanged. The JDA doesn't actually pay interest on the bonds, and Rivian doesn't actually pay rent for the facilities.

Pursuant to the Option Agreement, the Company has an option to purchase the JDA’s right, title and interest in the Project for a nominal $100 purchase price, plus surrender of the Project Bonds marked “cancelled” to the JDA, plus any other sums then due to the JDA under the related Rental Agreement and other bond documents at any time prior to the expiration or earlier termination of the Rental Agreement. If the Company does not meet its jobs or investment commitments as set forth in the EDA at the time the purchase option is exercised, it will be obligated to pay additional amounts as part of the option price.

The picture comes into focus. This bond crap is just a way for the state to secure its interests in case Rivian defaults on its employment and investment commitments to access the $1.5B tax relief package that was negotiated last year (I didn't excerpt the boring stuff about events in case of default).

Rivian isn't borrowing any money from this deal at all. Rivian will fund all plant construction and if they do what they committed to, they'll own all land, plant and machinery in the end for $100, and get $1.5B of tax relief. Actually, it is a bit more than just tax relief, here's how that $1.5B shakes out:

Rivian will get $476 million in statutory tax credits if it fulfills its promise to create a total of 7,500 jobs by the end of 2028. If it doesn’t, there are clawbacks to protect the taxpayer, said Pat Wilson, Georgia’s commissioner of economic development. Georgia is putting in another $288 million in discretionary spending in the form of site preparation and job training programs. Tax abatements from the four counties hosting the plant make up the rest of the package -- about $700 million over 25 years.

 

[Knightshade]

So... where is the 15 billion actually coming from then?

Rivian certainly doesn't have nearly that much cash... they've got just over 9B total and I think they're still burning 1B/quarter with the existing plant.

 

[Cosmacelf]

So... where is the 15 billion actually coming from then?

Rivian certainly doesn't have nearly that much cash... they've got just over 9B total and I think they're still burning 1B/quarter with the existing plant.

The $15B is a fictitious number. It’s like a shelf registration. The plant shouldn’t cost more than $5B. Even so, Rivian is going to have to actually raise money from either equity or debt for the plant. Maybe the complicated bond shell game will make it easier for Rivian to secure more debt?

 

[mongo]

The structure of this financing is a bit convoluted. Link to the SEC filing. And spoiler alert: This is NOT Rivian borrowing $15B.

First, this is all as a result of the Economic Development Agreement with these parties:



Rivian will actually rent the land and all buildings and machinery for the Georgia plant:



This will all be financed by a series of taxable bonds that the JDA issues:



So, wait, the company now buys the bonds from the JDA? So Rivian is actually financing the plant afterall.



So the JDA, as the bond issuer, pays interest and principle for the bonds to the bondholder, which is Rivian. And Rivian pays rental payments to the JDA to cover those same costs. So this paragraph above says that these payments cancel each other out and no monies are actually exchanged. The JDA doesn't actually pay interest on the bonds, and Rivian doesn't actually pay rent for the facilities.



The picture comes into focus. This bond crap is just a way for the state to secure its interests in case Rivian defaults on its employment and investment commitments to access the $1.5B tax relief package that was negotiated last year (I didn't excerpt the boring stuff about events in case of default).

Rivian isn't borrowing any money from this deal at all. Rivian will fund all plant construction and if they do what they committed to, they'll own all land, plant and machinery in the end for $100, and get $1.5B of tax relief. Actually, it is a bit more than just tax relief, here's how that $1.5B shakes out:

Yeah... that's why I specifically did not put any numbers in my post.