Rivian's Road to Profitability: A Long Way to Go

As a longtime Tesla bull and Wedbush analyst, Dan Ives, recently pointed out, Rivian Automotive (RIVN) has a long way to go before it can make money on its own. In a recent post on X, Gary Black, Managing Partner at The Future Fund LLC, echoed these sentiments, stating that Rivian would have lost about $13,000 for every vehicle sold in the fourth quarter if it hadn't sold regulatory credits. So, what's the deal with Rivian, and how can the company improve its cost efficiency and competitiveness?

First, let's take a look at Rivian's cost structure. In the fourth quarter of 2024, Rivian's cost of goods sold (COGS) per vehicle was $99,000, which is significantly higher than Tesla's COGS per vehicle of around $35,000 in the same quarter. This high COGS is a result of Rivian's focus on premium, high-quality vehicles and its early-stage production processes. To address this issue, Rivian has been working on reducing its COGS through cost-cutting measures, such as plant upgrades and the launch of second-generation R1 models.

However, Rivian's reliance on regulatory credit sales is not a sustainable path to profitability. In the fourth quarter, regulatory credit sales accounted for $110 million of the $170 million gross profit. This reliance on regulatory credits is subject to changes in regulations and market conditions, making it an unreliable revenue stream. To achieve long-term profitability, Rivian must focus on reducing its COGS and improving its gross margin from vehicle sales.

Rivian's production and delivery volumes have also been relatively low compared to its competitors. In 2024, Rivian delivered 51,579 vehicles, while Tesla delivered nearly 1.79 million vehicles. To increase its production and delivery volumes, Rivian plans to launch its mass-market R2 electric SUV, which is expected to start at around $45,000, or nearly half the current R1S and R1T models. Additionally, Rivian plans to significantly scale up production with its new manufacturing plant in Georgia.

Rivian's investment in research and development and infrastructure has also contributed to its net losses. These investments are necessary for long-term success, but as Rivian's production and sales volumes increase, the company expects these investments to pay off and contribute to its profitability.

To improve its cost efficiency and competitiveness, Rivian can take several steps:

1. Improve manufacturing processes: Rivian has already taken steps to improve its manufacturing processes, such as upgrading its tooling and reducing material costs. The company has also switched to a new zonal architecture, which reduces the number of electronic control units (ECUs) and wiring in its vehicles, lowering costs. These improvements should help Rivian reduce its COGS per vehicle.
2. Leverage partnerships: Rivian's partnership with Volkswagen Group Technology (the "Joint Venture") is expected to bring next-generation electrical architecture and best-in-class software technology for Rivian and Volkswagen Group future electric vehicles. This partnership could help Rivian reduce its costs by sharing technology and resources with Volkswagen.
3. Launch mass-market products: Rivian's upcoming R2 electric SUV is expected to be more affordable than its current R1 models, with a starting price of around $45,000. This mass-market product could help Rivian attract more customers and achieve economies of scale, reducing its costs per vehicle.
4. Focus on software and services: Rivian has been investing in its software and services offerings, which generated $484 million in revenue in the fourth quarter. By continuing to develop and monetize its software and services, Rivian can diversify its revenue streams and reduce its reliance on hardware sales.

In conclusion, Rivian has a long way to go before it can make money on its own, and the company faces challenges in reducing its COGS per vehicle. To improve its cost efficiency and competitiveness, Rivian can focus on improving its manufacturing processes, leveraging partnerships, launching mass-market products, and investing in software and services. By taking these steps, Rivian can work towards reducing its costs and achieving profitability.