Supply Chain Matters highlights Rivian Automotive’s reported Q4 and full-year financial and operational performance along with plans for the next two years.
Background
In a mid-January posting, we alerted our readers to reports that Rivian Automotive fell short of its 2022 vehicle production goal and that several top executives had departed the company, including the company’s purchasing head. The EV vehicle start-up reported the delivery of 20,337 vehicles in 2022, falling short of this company’s highly monitored commitment to produce 25,000 vehicles. Reportedly, 10,020 vehicles were produced in the final quarter of 2022, a classic hockey-stick sign of ongoing supply chain and production challenges. The company’s original commitment at the start of 2022 was to produce 50,000 vehicles, but that was cut at mid-year.
2022 Financial Performance and Communication to Shareholders
In late February, Rivian communicated to shareholders on its financial and operating performance.
Financial Performance Highlights
Total revenues for the fourth quarter of 2022 were reported as $663 million, below Wall Street consensus expectations, driven by the delivery of 8,054 vehicles. For fiscal year 2022, total revenues were $1,7 billion, supported by 20,332 total vehicle deliveries. The EV automaker acknowledged that it produced 10,020 vehicles during the fourth quarter.
Gross profit for fiscal year was a loss of $3.1 billion. Reported net operating loss for the fiscal year was $6.8 billion as compared to $4.7 billion in 2021. Included in the results were noted inventory charges and losses on firm purchase commitments of $920 million as of December 31, 2022 compared to $95 million as of December 31, 2021.
Rivian expects to continue to incur these charges throughout 2023 but anticipates the total charges to decline as cost of goods sold per vehicle reflects lowering material, production, logistics, and other costs. The automaker is forecasting a loss, excluding interest and amortization of $4.3 billion in 2023, and reaching positive gross profit by 2024.
Specifically noted, in part:
“Throughout the quarter, our cost of goods sold was impacted by short-term premiums on materials and expedited freight expenses which we expect to continue to negatively impact our gross margin in the near future. Our total cost of goods sold was also negatively impacted by the ramping of our second manufacturing shift. As we produce vehicles at low volumes on production lines designed for higher volumes, we have and will continue to experience negative gross profit driven by labor, depreciation and overhead costs.”
Rivian ended the fourth quarter of 2022 with a little over $12 billion in cash, cash equivalents, and restricted cash.
Operational, Product Development and Supply Chain Highlights
On the output side, Rivian indicated that it expects to produce 50,000 vehicles this year, which was again, below original estimates. Executives indicated that production this year would again be impacted by supply chain issues but in a more controlled fashion. There are further planned factory shutdowns to help boost capacity for consumer vehicles. Plans established for 2024 are to increase production capacity to 85,000 vehicles.
In the letter, Rivian indicates the EV automaker expects to demonstrate considerable progress in 2023 against its declared product roadmap. They include delivery of a 400 mile battery variant for the R1 model in the Fall of 2023. The company’s Enduro motor will reportedly be first introduced as a single motor, front-wheel drive variant in commercial vans, and subsequently as a dual motor all-wheel drive variant for R1 vehicles in late 2023.
A soon to be introduced new battery pack based on LFP call chemistry to include high nickel cells as well as LFP cells is expected to broaden available supply while reducing cost for commercial van and consumer customers.
Regarding increased product efficiencies, the letter indicates that Rivian will employ numerous learnings from the Normal, Illinois production facility into the layout of the planned Georgia facility, which will primarily support production of the planned R2 vehicle platform. Further indicated is that the company is in the process of updating supplier partnerships: “to be more reflective of Rivian’s commercial maturity, scale, and growth profile.” From our lens, that is a noble goal, but the reality is that the entire industry is broadly moving toward EV platforms and supply networks over the next three years. Start-ups will have a difficult challenge in arguing scale with larger global brands already demonstrating that they have branding, scale, and global supply chain influence.
Other Realities
In early February, the company communicated to employees the need for trimming the workforce by 6 percent in order to conserve cash. Reportedly, these layoffs are not expected to impact existing production workers at Rivian’s Normal Illinois factory facility. The start-up reportedly had employed upwards of 14,000 workers.
The move was attributed to recent EV vehicle price cuts initiated by competitors concerning popular existing EV models including the Ford Mustang Mach E EV and the Tesla Model Three. Reuters reported that since these moves, Rivian, Lucid Group and British startup Arrival have each announced headcount reductions, with Arrival’s cuts amounting to half of its existing workforce.
Product Recalls
In October of last year, the EV start-up recalled nearly all of its delivered vehicles to address a potential problem that could cause drivers to lose steering control after discovering a fastener connecting the upper control arm and steering knuckle may have been improperly installed.
In late February, Rivian announced the recall of over 12,000 vehicles, the equivalent of upwards of 90 percent of vehicles produced, to repair a faulty sensor in the front passenger seat. While the automaker stated that fewer than 100 vehicles are likely impacted, the company was unable to identify which specific vehicles had the faulty sensor, hence all vehicles produced before September 2022 had to be recalled. Both recalls were beyond software or electronics issues that could have been addressed by over the air software updates.
Added Thoughts
Again, from our lens, being a “breaking glass” start-up among a global wide automotive industry whose major players are each actively planning their supply and production network transformations to EV vehicles bring a unique set of challenges.
As we noted in our recent commentary related to Tesla’s next iteration audacious operating plan, seasoned operations management, scale and efficiency of product development and production are absolutely essential for this next phase of transformation. Traditional global brands, particularly the top five, have years of experience in implementing highly efficient and scalable production and supply networks for multiple buyer segments, and most have Tesla and other innovative start-ups as their competitive target. As noted, Rivian has already experienced senior executive turnover and announced headcount reductions run the risk of acquired talent and skills departing.
The company had to also terminate its prior partner relationship with Mercedes trucks to produce its commercial vehicles in Europe. Global scale will thus be another challenge to address over the coming two years.
Bob Ferrari
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