Questions linger over Rivian profitability

Analysts are skeptical over whether R2 and R3 ranges will be a commercial success

Questions linger over Rivian profitability
Rivian recently launched its R2 and R3 SUVs

Californian EV pure play Rivian may struggle to manufacture two recently launched compact SUVs profitably, according to Tom Narayan, global auto analyst at bank RBC Capital Markets .

Rivian's strategy behind the R2 and R3 ranges is to be bring more affordable EVs to market to raise sales volumes. However, Narayan queries how the company will make profits on a $45,000 EV when it has not yet made money on the $70,000 R1.

"Rivian produces its cars at a loss and that is at a higher price point, the R1. The question on a lot of folks' minds is 'how are [they] going to be able to produce [the R2], which is so compelling, profitably?'" Narayan told US broadcaster CNBC after the R2 launch.

Narayan also notes that Rivian has not given any information about the size, cost, or source of the vehicle's battery.

Formula for success

Rivian's strategy resembles that of Elon Musk-led EV pure play Tesla, which first brought out its premium Models S and X, subsequently releasing its Model 3 and Model Y to target higher volumes.

"Recall that Tesla did the same playbook. It started out with the S and the X, very expensive, low volume cars, and created this brand, and then came out with the 3 and Y. Those are high volume cars today; that is what makes the profit centre for Tesla. Here, that is what Rivian is hoping for," says Narayan.

But Rivian will face fiercer competition in the EV market than Tesla did, with US OEMs GM and Jeep amongst those launching EVs in the same market segment as the firm this year.

"Remember Tesla did not have any of that competition. Rivian is going to be coming out with these vehicles in a very competitive subset," says Narayan.

Narayan has a hold recommendation for Rivian shares.

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"I do want to say that the products this company creates are very impressive for the consumer," he adds. "The question investors have now is whether they are good for investors."

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