My Thoughts on Rivian

In the world of electric vehicles, Tesla has long been the dominant name. However, things are slowly changing and the landscape is evolving. New competitors have emerged, and Tesla's market share in the EV space has been gradually eroding. We've witnessed the rapid rise of other EV companies in Asia, such as BYD, NIO, Li Auto, and XPeng.

In North America, a new player has been turning heads and generating excitement: Rivian. This American automaker has burst onto the scene with a fresh take on electric adventure vehicles, combining rugged capability with eco-friendly innovation.

Founded in 2009, Rivian has quickly established a strong presence in the automotive market. Their flagship models, the R1T pickup truck and R1S SUV, have captured the imagination of outdoor enthusiasts and tech-savvy consumers alike. But what sets Rivian apart in an increasingly crowded electric vehicle landscape?

Why am I even writing a blog on this? Well, I genuinely admire the company, I own a fair amount of shares, and I felt like writing my thoughts down :) So why not?

DESIGN

Firstly, have you seen their vehicles yet? They are simply stunning. Rivian has done a phenomenal job with their designs. Their cars feature distinctive "plus" shaped headlights, soft curved edges, a boxy look, and a friendly feel.

I have now seen three Rivian models in person here in Winnipeg (only one had a Manitoba license plate), and they look even better up close. They're eye-catching and immediately recognizable, especially since there aren't many on the roads yet. Rivian has undoubtedly excelled in vehicle design.

HISTORICAL PERFORMANCE

Alright, enough about looks; let's take a dive into Rivian's historical financial performance.

The company's growth has been nothing short of outstanding. As EVs have gained popularity, Rivian has successfully navigated the competitive landscape, pushing through headwinds from both legacy automakers (e.g., Ford, GMC, Volkswagen, Hyundai) and growing EV companies (Tesla, Lucid, Polestar).

Rivian has come a long way, progressing from proof of concept to putting actual cars on the roads. They've proven their ability to deliver on promises.

Ignore the red for now (please!). As you can see, revenue growth has been explosive. In just two and a half years, Rivian has increased revenue by over 9,000%, going from $55.0 million to $5.0 billion. This represents a compounded growth rate of 508.0%. The exponential growth of Rivian highlights a promising future... IF....

If they can figure out a way to stop burning through so much money (you can now pay attention to the red numbers). The biggest red flag is that Rivian has yet to generate a gross profit – which is a significant concern. Cost of sales has consistently outpaced revenue. However, as highlighted in the table above, Rivian's cost of sales has slowly started to trend towards a positive gross margin. Gross margin has improved from -845.5% in 2021 (yikes...) to -41.1% in the trailing twelve-month period of June 30, 2024 ("TTM").

The path towards positive gross margin is the first step in establishing themselves as viable long-lasting player within the automotive realm. If they can't achieve this soon, investors may lose faith, making it harder for Rivian to raise capital (which they have done a great job of doing thus far).

Since going public, Rivian's cash balance has been dwindling, and the alarms are quietly sounding. They went from a cash balance of $18.1 billion as at December 31, 2021 to $5.8 billion as at June 30, 2024.

However, Rivian recently received some much-needed help from a fellow competitor. On June 25th, it was announced that Rivian and Volkswagen ("VW") have teamed up for a joint venture. Most importantly, the deal specifies that VW will invest up to $5.0 billion in Rivian, which gives the company some added time to figure out their cash-burning woes.

THE ROAD AHEAD

As bad as these numbers look, it's important to remember that many companies take years to generate a net profit, especially in the capital-intensive automotive manufacturing industry. Other than Tesla, can you name a car company that isn't one of the legacy automakers? probably not. Afterall, even Tesla took 18 years to turn its first profit...

According to Rivian's management team, the company expects to generate positive gross margins by Q4. The flywheel has started to spin for Rivian, and it's only a matter of time until more people realize the ongoing transformation in the automotive industry. I mean, why else would VW invest in Rivian? The truth is that some of the legacy automakers are having a challenging time shifting towards the tech and eco-friendly transition. The VW partnership validates Rivian's technology and highlights the value of the company's intellectual property.

Another promising factor is Amazon's substantial investment in Rivian. As Rivian's largest investor, Amazon holds approximately 25.0% of the company's shares.

In 2019, Amazon announced its partnership with Rivian, committing to bring 100,000 electric delivery vehicles on the road by 2030. Today, there are more than 15,000 of these delivery vans on the roads in the USA and Europe.

Rivian's R2 platform, scheduled for release in 2026, is expected to be a catalyst for decreasing overall costs. The current R1 lineup is pretty expensive, which limits its consumer-base. However, the cheaper R2, Rivian is anticipated to bump up demand. According to Rivian's CEO – RJ Scaringe – the company received over 68,000 R2 reservations within 24 hours of its debut.

As we stand at the crossroads of innovation and tradition in the automotive industry, Rivian is a leading example of what the future can hold. While the road ahead may be plagued with challenges, Rivian's impressive growth trajectory and ambitious plans signal that it is ready to tackle future headwinds. The partnerships with Volkswagen and Amazon provide not only financial backing but also validation of Rivian's vision. The anticipated launch of the R2 platform could very well be the game-changer that catapults Rivian into widespread recognition.

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The most recent Rivian vehicle I saw in person was the R1T, about three months ago. Look at it... Absolutely stunning!