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

    Rivian tackles its largest problems with Mercedes partnership

    Victor Lei — Head of Research

    September 12, 2022

    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.

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