Reuters recently reported that every time Rivian Automotive Inc. sells an electric vehicle, it loses “hundreds of thousands of dollars due to staggering raw material and production costs, their latest earnings statements showed” (Sriram, 2022).
This is based on research that found the “cost of goods sold was about $220,000 per car versus an average selling price of $81,000 in the quarter,” wrote reporter Akash Sriran (2022).
The commentariat of Jalopnik questioned this assessment on two fronts. First, the story’s phrasing inaccurately implies that Rivian is losing money whenever it sells a vehicle. Second, that one vehicle costs upwards of $200,000 to produce.
Startups will have much higher costs than revenue
Jalopnik commentator OR (2022) noted that the data likely includes “all of their spending — including R&D for the whole line, marketing from day 0, etc — rather than just the cost of the cars they’ve actually brought to market.”
Blockheads (2022) agreed, adding that the “same thing happened back when Tesla was getting up and running. People were conflating Tesla’s spending with the profitability of each unit sold. You can’t simply divide the spend across the number of units sold and claim that a company loses that much on every unit. There’s well defined business and accounting practices that will determine it a different way.”
Zachary Shahan (2022), chief editor of CleanTechnica, weighed in on the side of Jalopnik commentators. “The problem in the auto world — or at least automotive and business media — is that people dramatize this and fear-monger by writing headlines like ‘EV Makers Losing Hundreds of Thousands of Dollars On Every Car.’”
In fairness to the Reuters reporter, he did state in another part of his story that higher output for EV startups such as Rivian “would ultimately reduce the cost per car and limiting production can threaten the path to profitability, analysts said” (Sriram, 2022). However, this wasn’t noted until almost the end of the article.
Rivian may have blown its chance to conserve cash
Sriran (2022) did make a useful point in his story that EV startups such as Rivian “must find ways to save money if they want to outlast a bad economy.” Here Rivian may have boxed itself in.
Last December the automaker announced that it was building a new $5 billion battery and assembly plant in Georgia. The complex could ultimately employ as many as 10,000 workers, “which would make it among the largest auto assembly complexes in the United States,” according to the Associated Press (2021).
“The company argues that electric vehicle adoption is at the ‘tipping point’ and it is well positioned for success because trucks and SUVs have long been the most profitable vehicles sold,” stated the Associated Press (2021). “But some analysts question whether it needs another plant besides the former Mitsubishi plant in Illinois, that Rivian bought for $16 million in 2017. Rivian says it has a yearly capacity of 150,000 vehicles, but is looking to expand there as well.”
Could lawsuit against plant give Rivian an out?
One stumbling block to building Rivian’s proposed facility is that last month a Georgia judge rejected a big tax break for the automaker. Among the reasons for the rejection is that a local development authority had not adequately documented that the plant was “sound, reasonable and feasible,” which is a state-level requirement (Amy and AP, 2022).
The state of Georgia and the development authority are appealing the decision. If it stands, Rivian would lose $700 million of a $1.5 billion package of incentives to build the facility (Trubey, 2022).
Rivian announced the plant when it was flush with cash and had a market value of $95 billion, which was more than either Ford or General Motors (Associated Press, 2021). In just one year that market value has fallen by almost 73 percent to under $26 billion (companiesmarketcap.com, 2022).
One might reasonably argue that Rivian’s best move at this point is to put on hold the new complex and focus on ramping up production at its existing plant, which is being expanded to 200,000 units (Golson, 2021). Is Rivian management capable of downsizing its ambitions? Or does CEO R. J. Scaringe suffer from the same hubris that led Henry J. Kaiser to kill his fledgling automobile company by expanding too quickly?
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RE:SOURCES
- Amy, Jeff and AP; 2022. “Rivian’s $5 billion plant in Georgia loses lucrative property tax break after judge unexpectedly throws it out.” Fortune. Posted Oct. 1.
- Associated Press; 2021. “Rivian to build $5 billion electric truck plant in Georgia, sources say.” CNBC. Posted Dec. 15.
- Barfield, Allison; 2022. “The 2022 Rivian R1T Is Too Underpriced to Be Profitable.” MotorBiscuit. Posted June 6.
- Blockheads; 2022. Commentator in “EV Makers Losing Hundreds of Thousands of Dollars On Every Car.” Jalopnik. Posted 11:23 a.m., Nov. 14.
- companiesmarketcap.com; 2022. “Market capitalization of Rivian (RIVN).” Accessed Nov. 22.
- Doll, Scooter; 2022. “Rivian’s Georgia site plans reveal nearly 20 million sq. ft. of buildings complete with a test track and ‘adventure trail.’” Electrek. Posted Jan. 12.
- Golson, Daniel; 2021. “Rivian will build a $5B factory in Georgia for next-gen vehicles.” CNET. Posted Dec. 16.
- OR; 2022. Commentator in “EV Makers Losing Hundreds of Thousands of Dollars On Every Car.” Jalopnik. Posted 11:11 a.m., Nov. 14.
- Shahan, Zachary; 2022. “EV Makers Are Not Losing Hundreds Of Thousands Of Dollars On Every Car Sold.” CleanTechnica. Posted Nov. 16.
- Sriram, Akash; 2022. “Electric vehicle makers burning cash, slammed by sky-high costs.” Reuters. Posted Nov. 14.
- Trubey, J. Scott; 2022. “State to appeal ruling striking down Rivian property tax breaks.” The Atlanta Journal-Constitution. Posted Oct. 28.
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