Editorial StaffKEY POINTS
- Supply chain issues continue to plague the industry.
- Production, deliveries, and demand are all up.
- The company has considerable cash on hand to keep production afloat.
Rivian’s earnings provided some answers, but questions remain.
At the close of the market on Thursday last week, America’s second-most-valuable electric vehicle maker released its second-quarter earnings report. It was a mixed bag, to say the least, so let’s unpack some of the main points and how to think about Rivian (RIVN -4.17%) going forward.
Like most companies today, supply chain issues remain formidable obstacles hindering production, and Rivian hasn’t been spared. The company admitted the “supply chain continues to be the limiting factor of our production.”
The good news
Although the company may not be producing as many vehicles as it had hoped, it technically remains on track to meet its production goal. After supply chain issues became more fully understood in Q1, Rivian revised its expectations to produce 25,000 cars this year. Based on current numbers from Q2, they believe they should be able to make 26,000 vehicles. In today’s environment, any increase in production should be celebrated.
A further dive into Q2’s numbers shows Rivian produced 4,401 cars. This is up from the 2,553 cars the company produced in Q1. They also delivered almost four times as many cars as in Q1.
In the electric vehicle industry, production and deliveries are where most attention falls. This is now the third straight quarter that Rivian has increased its production and deliveries. Considering the company went public just last November, this feat shouldn’t be glanced over.
Yet, those production and delivery capabilities look like they will be further put to the test. Statistics released in the earnings call suggest more people want Rivian’s vehicles. Since Q1, the company has received another 8,000 pre-orders. Increased demand is always a good thing to have. Now, the company needs to follow through.
Some more good news was that the company generated more revenue than ever before. Up from just $95 million in Q1, Rivian brought in more than $360 million this quarter, beating estimates of $337 million — not bad.
The not-so-good news
However, the earnings call wasn’t all sunshine and rainbows. Like many electric vehicle makers, making a profit can be difficult, and Rivian isn’t quite there yet. The company posted another loss this quarter to the tune of $1.7 billion.
Of more concern is that despite production estimates increasing to 26,000, Rivian estimates its losses will increase, too. Rivian originally forecasted a loss of around $4.75 billion for 2022. That number has now jumped to $5.4 billion.
Rivian is increasing production and deliveries substantially, but costs and losses continue to rise. At the end of Q1, Rivian had $17 billion in cash and alternatives on hand, but that has fallen to $15.5 billion this quarter. These reserves are the only funds keeping Rivian afloat.
For now, the company hopes to maintain that balance of reserves until its new 2,000-acre mega-factory in Georgia becomes operational. But that isn’t planned to happen until 2025. Rivian hopes that once the factory opens, it will be able to produce 400,000 cars a year.
A buy for the long term
If Rivian can make that $15.5 billion last until 2025, the prospect of investing in the electric car stock seems plausible. At its current pace, Rivian executives believe they will be able to make that cash last until that hopeful day.
Production, deliveries, and demand are all up, but supply chain limitations and a lack of profits still add doubt in the long term. And this is the conundrum Rivian investors find themselves in. Can you trust the company to manage that $15.5 billion until the Georgia plant opens in 2025, or is the company running on borrowed time?
Investors should view the increase in production and deliveries as positive, but of most importance might be the increase in demand. At some point, supply chain issues will be resolved, which should eliminate some production and shipment costs. But over the long haul, more people want to drive Rivian’s cars — and that’s a good thing.
With the stock losing more than three-quarters of its value from the all-time high of $172, Rivian looks like it has potential. This isn’t to say there is more risk than likely desired, but the long-term prospects are there. If Rivian can continue increasing production, deliveries, and demand, investors should be treated to favorable returns when 2025 arrives.
Source: Motley Fool
