Rivian tackles its largest problems with Mercedes partnership – The Average Joe


Latest Issues Subscribe


About Us Jobs

Become a better investor with our free daily newsletters

Join 250,000+ investors discovering new market trends and ideas.

    Rivian tackles its largest problems with Mercedes partnership


    September 12, 2022

    Electric truck maker Rivian was one of the most hyped IPOs of 2021 — going public at a $127B market cap — only to fall over 70% since.

    Last week, they announced a partnership with Mercedes to cooperate in building electric vans in Europe last week — a move in the right direction to address many of its largest problems. Before, they wanted to go fast; now, they want to go far…

    Problem #1: Production issues

    Rivian has a partnership to supply Amazon — who also owns 17% of $RIVN — with 100,000 electric vans by the end of the decade. With a backlog of 98,000 orders, there’s no shortage of EV demand.

    The problem is on the supply side. Rivian has struggled with production issues — lowering its delivery forecast to 25,000 this year. Wall Street had expected 40,000 deliveries.

    • Under-delivering: Rivian only delivered 4,467 vehicles in the most recent quarter.
    • Comparison: Tesla delivered 57x that amount and is actually making a profit.

    Problem #2: Profitability

    It’s difficult and expensive to manufacture cars profitably at highvolumes. Per Bloomberg columnist Chris Bryant, Rivian resembles Tesla in 2017-2018 — a period where Tesla nearly went bankrupt as it ramped up Model 3 production.

    Analysts expect Rivian to lose $6.5B this year, with total losses racking up to $30B by 2027. To extend its runway, Rivian has made several efforts to conserve cash:

    • Layoffs: In July, announcing plans to lay off 6% of its workforce.
    • Price increases: Raised prices on some vehicles by as much as $20,000.

    With the help of Mercedes, Rivian could reduce manufacturing costs, gain experience from a major auto company, and expand faster into the European market.

    Investors: Trucking against time and money

    Luckily, Rivian went public in a strong market and raised nearly $12B upon going public — leaving it with $15B cash at the end of June. But even with this much cash, Rivian will eventually have to raise more, given its spending rate.

    Still, $RIVN outperformed in the past four months with an 80% gain as markets recovered slightly. Market conditions are still the driving factor behind its stock.

    The upside: Supply chain issues reverse, commodity (material) prices continue falling and Rivian ups its delivery forecasts.

    Trending Posts