Rivian (RIVN) Q3 earnings preview: Will rising costs slow production ramp?

Rivian ($RIVN) is set to deliver its third-quarter earnings Wednesday, November 9, after the bell as the EV maker comes under the microscope into year’s end. Can Rivian continue expanding operations, or will inflationary pressure slow its momentum? In this Rivian Q3 earnings preview, I’ll discuss what to look for as the EV startup attempts to establish its position in the growing electric vehicle market.

Rivian Q3 deliveries and updates

Rivian began deliveries of its R1T electric pickup in September 2021, followed by the R1S and EDV electric delivery van later that year.

Higher input prices due to inflation caused the automaker to raise prices in March 2022, which caused some buyers to cancel their orders.

At the end of the second quarter, the automaker announced it had produced 4,401 vehicles (+72% QoQ) and delivered 4,467 EVs, an increase of 264% from Q1. Rivian also confirmed at the time it was on track to achieve its prior guidance of producing 25,000 EVs in 2022.

Rivans net backlog for its R1T pickup grew to around 98,000 as the average daily preorder rate rose in the second quarter.

In October, Rivian announced it produced 7,363 electric vehicles at its Normal, Illinois plant and delivered 6,584 EVs during the third quarter ending September 30, 2022.

Amazon confirmed yesterday that the e-commerce giant will roll out over 1,000 Rivian EDVs this holiday season as part of its 100,000 orders to be completed by 2025. The partnership should help supplement Rivian with cash flow as it scales production over the next few years.

At the same time, several macroeconomic factors are causing pressure on startups and the auto industry in general. Rising interest rates and labor are cutting into already tight profit margins while causing debt to become more expensive over time.

Rivan’s financial situation

Rivian generated $364 million in revenue in the second quarter, primarily driven by EV deliveries. Meanwhile, ramping up production and launching new EV platforms is costly, as Rivian recorded a gross loss of $704 million. Claire Mcdonough explains on the company’s Q2 earnings call:

Simultaneously launching two vehicle platforms and production lines is a complex process with high fixed costs associated with the labor and overhead required to run our large-scale plant, which can support 150,000 units of annual capacity.

Altogether, Rivian posted a net loss of $1.7 billion as operating expenses reached over $1 billion. To compensate, the company says it will focus on “optimizing our product road map and associated operating expenses,” cutting capital expenditure guidance by $600 million.

Regarding the balance sheet, Rivian ended the second quarter with $15 billion in cash, noting they “remain confident in our path to launch the R2 vehicle platform” with the cash on hand. Meanwhile, the company’s total debt climbed to $1.65 billion.

To boost production, Rivian did note it will be adding a second shift for general assembly.

Rivian Q3 earnings preview: What to look out for

One of the biggest things investors will be looking for is demand. Is Rivian’s backlog growing, and is the average daily preorder rate still rising?

If Rivian is on track to hit its 2022 production goal of 25,000, it would indicate an improvement in Q3 and Q4 production levels. The company produced 6,954 in the first half of the year, meaning they need to achieve over 18,000 in the second half.

Guidance is always a critical factor to keep an eye on. With rising input costs, can Rivian maintain and build upon its momentum? Or will the changing macroeconomic environment prove to be too much?

The last thing to watch for is any updates on the R2 platform. Rivian said that although its R1 models won’t meet the price threshold to receive tax credits provided by the Inflation Reduction Act, its R2 product line is being developed “to allow our customers to capture the value of these incentives.”

Rivian stock price is down over 70% this year, like many unprofitable growth companies. If Rivian wants to get back on track, it must show it can manage its debt while continuing to build its production capabilities. The Amazon EDV backing should help, but it needs to show it has what it takes to compete in the highly competitive EV market to get investors back on board. Doing so will mean trimming debt, building cash flow, and getting margins under control.

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