Rivian Automotive’s recent report on quarterly financial performance provides evidence that this EV start-up is showing signs that the company has done its homework in supply chain and production operations industry basics.
Background
In prior Supply Chain Matters commentaries focused on Rivian, we have pointed out the various challenges and struggles for introducing a uniquely designed SUV and pick-up truck, while fulfilling the volume delivery needs related to a supply contract with online retail platform provider Amazon for customized EV delivery vans.
In a mid-January posting, we alerted our readers to reports that Rivian fell short of its 2022 vehicle production goal and that several top executives had departed the company, including the company’s purchasing head. Reported was 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.
On the output side, Rivian indicated In January that the start-up 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. Plans established for 2024 were to increase production capacity to 85,000 vehicles.
In our posting in late March, we highlighted reports of a manufacturing reorganization that included the relocation of portions of the start-up’s manufacturing engineering team to be directly resident at the company’s Normal, Illinois start-up production facility. For months, the EV maker has struggled with continual supply chain component shortages that impacted abilities for establishing increased production output.
Having burned through $6.6 billion in cash resources last year and with Wall Street analysts anticipating another $6 billion this year, the pressure was mounting. Two rounds of layoffs involving salaried staff have occurred along with the postponement of previous planned new EV models.
Latest Quarterly Financial and Operational Performance
Rivian’s latest Q2 financial performance was headlined with delivery of stronger than expected results.
That included total revenue of $1.1 billion from $364 million in the year earlier quarter. Net loss was reported as $1.2 billion, compared to $1.7 billion in the year-earlier quarter. Analyst consensus was an expected $1.5 billion loss, thus there was a bounce effect in the company stock price on the news.
Shared in a letter to shareholders from executives was that gross margins per vehicle declined as production costs for producing the RIT EV pick-up truck and RIS EV SUV declined. Customer vehicle deliveries increased 60 percent to 12,640 vehicles. Noted was an earlier decision to incorporate insourced drive units played and will continue to play an instrumental role in improving production ramp and cost structures. Specifically indicated:
“We have achieved meaningful reductions in both R1 and EDV vehicle unit cost across each major cost category, including material cost, manufacturing labor, overhead and logistics. Reductions in material cost per unit reflect the impact of the introduction of new technologies such as our n-house Enduro motor and the lithium iron phosphate (“LFP”) battery pack as well as negotiated supplier price reductions, including the elimination of short-term premiums.”
Rivian has reportedly now produced 23,387 vehicles in the first half of this year and guidance for total output this year was increased to 52,000 vehicles. Noted was that in Q2, the company produced 13,992 and delivered 12,640 vehicles. That represented a nearly 50 percent increase in production as compared to the prior quarter
Rivian CEO RJ Scaringe further indicated that more SUV’s were produced in the latest quarter as compared to the company’s pick-up truck. In its reporting, The Wall Street Journal noted that the SUV has a higher selling price which has helped to trim losses.
Executives further indicated that the cost for producing Amazon EV delivery vans has fallen 35 percent, in part due to utilizing an internally produced battery pack and motor. Company executives further pointed to the initiation of revised supplier agreements to support ongoing production targets.
The company ended Q2-2023 with a reported $10.2 million in cash, cash equivalents, and short term investments. That presents a further challenge for cash management.
Added Thoughts
We noted in prior commentary that integration and tight collaboration among product design, manufacturing engineering and production operations has proven to be table stakes in enabling expected business outcomes. That is especially the case when dealing with engineering design product innovation. Customers can have limited patience, especially with other EV buying options more prevalent.
We titled this commentary as learning industry supply chain basics. While Rivian’s Q2 performance is noteworthy, consistent supply chain planning and production execution is essential for the remainder of this year.
With continuing vehicle price competition in the automotive EV market segment, the stakes are high, especially for innovative start-ups.
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