Rivian's path to profitability with EV market competition growing.

Startup talk: What’s going on with Rivian?

When Rivian went public in 2021 its shares soared, the initial IPO price was $78 but that soon closed at $100.73. At the time, this was the biggest IPO since 2014 but since then times have been tough for young EV maker. Rivian now trades at around $18. They released their first vehicle, the R1T, in 2021 and since then have delivered over 57,000 vehicles, produced vans for Amazon, and inked a new deal with AT&T.

The EV market is projected to grow at a compound annual growth rate of 9.82% and reach $900 Billion by 2028. This means more competition for Rivian and without an edge, their growth will be capped out. I look at older and more established companies adopting EVs such as Volkswagen, Kia, Ford, and BMW, and think, “Why would people trust a startup such as Rivian when established players are making their way into the market?” Their truck has already drawn comparisons to Ford’s F-150 Lightning and Rivian is already demonstrating its innovation in comparison to Ford with critics stating a better interior design, off-roading capability, driving range, fuel economy, and towing capacity. Rivian currently holds 4.3% of the market share in the EV market with Tesla staying steady at the top with a 50% market share. Who’s in between them? Oh, just the brands that have dominated for a while Ford, General Motors, Nissan, and more. This pops out to me as with just a truck and an SUV how will Rivian win more market share? The answer is their vans. Rivian has already promised to deliver 100,000 commercial vans to Amazon by 2030 and I already see them plenty when I am on campus at Miami University.

The Vans have a starting price of $83,000 and projects Rivian sells 50,000 to 100,000 of these a year, their revenue from the Vans alone will be between $4 and $8 Billion. Rivian has also ended its exclusivity contract with Amazon and can now partner with other companies. Saying that I think Rivian should focus on its B2B business model as it can have partnerships with delivery-based companies such as Fedex, UPS, and USPS and combine this with smaller companies that are in this last-mile delivery space. I think Rivian could also benefit from designing their van for different use cases, for example, construction companies. These partnerships will help grow Rivian’s corporate customer base and make a push toward more market share. If Rivian strikes at this opportunity, their vans can become “the van” in terms of EVs as it has demonstrated already being environmentally friendly and has tax benefits.

The opportunity for Rivian has presented itself but they do have a few roadblocks, one is their costs. Although improving from $917 million in Q3 2022 to $477 million in Q3 2023, Rivian still has a lot of work to do with their COGS as in the twelve months ending September 30, 2023, amounted to $6.206 billion, reflecting a significant year-over-year increase of 74.57%. This means a lower profit margin for Rivian as they aren’t even making a profit and are losing money on each car produced but investors aren’t heavily worried as Tesla’s first year turning a profit was 2020. Rivian has shown growth in their profit per vehicle and could soon be turning a profit, Rivian reported a loss per vehicle of US$30,600 as of the third quarter of 2023. Nevertheless, this current figure represents a substantial decrease compared to the US$139,300 loss reported a year ago. If this positive trend continues then Rivian is on its way to profitability.

Although there’s a path to success for Rivian, there’s also the opposite. Rivian has been through massive supply chain issues which have sunken its stock and its need for capital has signaled a massive problem as its burn rate is through the roof. It looked good for Rivian when their stock soared in August as CEO RJ Scaringe said that they wouldn’t have to raise money until 2025 but views flipped and their stock dropped 20% in October when they announced their plans to offer $1.5 billion in convertible notes.

Speculation has been drawn to several mergers and acquisitions for Rivian including merging with Lucid as the EV market is getting overcrowded and these two young startups joining forces could be beneficial for both sides. A Tesla acquisition was a thing for a while but not so likely anymore as their Cybertruck has begun.

Overall, I think Rivian has a clear path to profitability and their issues are very solvable but the question is will they be able to solve these and scale? Competition is growing and Rivian has started to set itself apart but it will need to continue to innovate in order for it to grow.

Sources: Yahoo Finance, Rivian, Macrotrends, Investorplace, Seeking Alpha