Rivian looks to seize on cost-saving momentum

But further optimisation will mean a 2024 factory shutdown

Rivian looks to seize on cost-saving momentum
Rivian is getting out of its Amazon delivery van exclusivity deal

US automaker Rivian has revised its year-end production guidance up to 54,000 EVs, as the company seeks to continue shrinking its losses per unit.

Rivian’s 2023 output revision was expected by many analysts, with a consensus predicting this upgrade to 54,000 after Rivian pre-announced its Q3 delivery totals. And it could still be conservative.

The company’s third quarter production rate implies an annualised production capacity of well over 54,000/yr. And the company would only have to repeat its Q3 production in Q4 to reach the 54,000 target, when it has increased quarter-on-quarter production significantly in every quarter this year.

Production increased by 59pc between quarters one and two, and by 23pc between quarters two and three.

Cutting losses

Rivian produced 16,304 vehicles and delivered 15,564 vehicles in the third quarter, generating $1.3bn in revenue. The company’s total gross loss for the quarter was $477mn, $65mn greater than Q2 losses, but 48pc improved year-on-year.

“We remain focused on improving our gross profit per vehicle delivered,” notes CFO Claire McDonough, who also adds that Rivian is revising its year-end Ebitda guidance to -$4bn, an improvement of $200mn over previous projections.

Cost savings are high on Rivian’s list of priorities in view of its target for positive gross margins by 2024, but the firm is already seeing progress. “During the third quarter, our gross loss per vehicle improved by approximately $2,000 versus the second quarter,” McDonough says.

CEO RJ Scaringe also identifies three pillars of Rivian’s strategy to lower operating expenditure, chief among which being the absorption of fixed costs as the company’s production facilities increase capacity, along with continuing to renegotiate supplier deals to lower costs, and the introduction of new selling prices for the company’s EVs.

However, Scaringe says that the cost-cutting measures will involve a shutdown at the company’s Illinois facility, “to introduce a number of new in-vehicle technologies to the R1 platform”. “We believe these changes will meaningfully reduce our material costs and position Rivian to exit 2024 with a much-improved margin profile,” Scaringe says.

“We are planning to adjust the production rate of the lines whereby the planned annual capacity will be for 85,000 units for R1 and 65,000 units for EDV, keeping the total facility at an annual capacity of 150,000 units,” McDonough adds.

A recently announced factory in Georgia, targeting additional 400,000 annual production upon its completion, will take Rivan to a targeted 550,000 annual capacity by 2025. As production ramps up and a volume-first approach takes hold, the aforementioned cost reduction plan will become ever more important, especially in relation to the upcoming R2 vehicle line, which Rivian hopes to price between $40,000 and $60,000.

“Rivian's production ramp and introduction of multiple vehicle platforms in our Illinois plant has provided significant learnings in a compressed timeframe. Our team will apply this experience to our new manufacturing facility in Georgia, with the goal of achieving a considerably lower cost structure,” Scaringe says.

Amazon exclusivity

But another key factor in reducing costs has been an uptick in deliveries of the company’s electric delivery van (EDV), a higher margin vehicle for Rivian.

“We saw significant improvements in material costs, which was driven by a shift to greater concentration of EDV delivery volumes,” McDonough says, adding that the commercial vehicle accounted for approximately 30pc of Rivian’s revenue in the quarter.

Rivian has also announced that it will end the exclusivity clause in its deal to supply EDVs to retail giant Amazon, an announcement expected by analysts for some months. This opens up Rivian to an expanded customer base to serve with its capacity to produce 65,000 EDVs/yr. Scaringe, however, cautions that such large fleet orders will take time to crystallise.

“Those pilot programmes which will be kicking off — we will be announcing a number of them shortly — will lead to larger volumes. But we want to be careful to just set expectations in the right way that these pilot programmes will take some time,” he says.

“The significant opportunity really starts to kick in in 2025, as these larger customers transition from pilot to at-scale development,” Scaringe adds.

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