Rivian Q2 2024 Earnings Results (Report Summary) ?

[HaveBlue]

Looking through the financials, they are still burning through cash at about the same speed. R&D is humming along at $400M probably to bring R2 R3 into shape. It looks like they are still depreciating/amortizing/servicing $500M bleed and that may stay level trading the right off's for early assembly line type stuff with capital investments in Gen2 and related debt service. I think it's too early to assume the write offs from being a startup have been realized and carefully taking those losses is smart from a tax and investor perspective. Their $1B debt increase from VW will also be noticeable mark on the balance sheet. Much of that "borrowed" cash will need to be expensed as it delivers on its commitment to help VW but there should be plenty left over as income to write against other expenses and use the cash for further investment as the contract converts.

Having built large projects in the 10s of millions, how you capitalize and expense against income is a line that takes practice to walk. Every project is a loser in the beginning as all you have it debt and perceived Work in Process. We'll know more later in the year to see if the Gen2 gamble worked where sales volume and gross profit per vehicle rises from the $4K to numbers that will service capital investments.

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[mkhuffman]

Looking through the financials, they are still burning through cash at about the same speed. R&D is humming along at $400M probably to bring R2 R3 into shape. It looks like they are still depreciating/amortizing/servicing $500M bleed and that may stay level trading the right off's for early assembly line type stuff with capital investments in Gen2 and related debt service. I think it's too early to assume the write offs from being a startup have been realized and carefully taking those losses is smart from a tax and investor perspective. Their $1B debt increase from VW will also be noticeable mark on the balance sheet. Much of that "borrowed" cash will need to be expensed as it delivers on its commitment to help VW but there should be plenty left over as income to write against other expenses and use the cash for further investment as the contract converts.

Having built large projects in the 10s of millions, how you capitalize and expense against income is a line that takes practice to walk. Every project is a loser in the beginning as all you have it debt and perceived Work in Process. We'll know more later in the year to see if the Gen2 gamble worked where sales volume and gross profit per vehicle rises from the $4K to numbers that will service capital investments.

Good assessment.

What is the $4k number you are referencing?

 

[Zoidz]

IMO, which includes owning shares of Rivian, they have consistently executed according to their announced financial plan even in light of a "chilled" EV market. RJ transparently telegraphed that the quarter was going to be messy, and they have beeen saying for at least a year that the Gen2 optimization will make them profitable. Despite analysts efforts, they have not been able to punch ANY holes in Rivian's financial execution to date.

It's a shame that some people are so hung up on the "loss per vehicle" number. I get it that it distills the financials into a easy to understand number, but .... financials of a startup in the automotive industry, or any heavy manufacturing industry for that matter, are too complex to live or die on "loss per unit" in the early years OR when releasing a new vehicle. And assuming Rivian does move that number north of $0 in Q4, that still doesn't mean they are truly profitable or will survive long term. Relax and give them a chance to execute the years long plan. If you can't do that, you should not have invested.

 

[André]

I am not worried about gross margins as costs reduction should be real from Gen 2. I am a bit more concerned on sales going forward and hope they can maintain demand until they get to R2 deliveries which should provides the volume necessary for their survival. A lot of sales growth in Q2 must comes from people using their vouchers before they expire or before the shop got empty of their wished configuration. Let‘s be honest… the Gen 2 cars at the new price (without voucher) are expensive luxury cars in a niche market.

 

[mkhuffman]

IMO, which includes owning shares of Rivian, they have consistently executed according to their announced financial plan even in light of a "chilled" EV market. RJ transparently telegraphed that the quarter was going to be messy, and they have beeen saying for at least a year that the Gen2 optimization will make them profitable. Despite analysts efforts, they have not been able to punch ANY holes in Rivian's financial execution to date.

It's a shame that some people are so hung up on the "loss per vehicle" number. I get it that it distills the financials into a easy to understand number, but .... financials of a startup in the automotive industry, or any heavy manufacturing industry for that matter, are too complex to live or die on "loss per unit" in the early years OR when releasing a new vehicle. And assuming Rivian does move that number north of $0 in Q4, that still doesn't mean they are truly profitable or will survive long term. Relax and give them a chance to execute the years long plan. If you can't do that, you should not have invested.

The reason I am focused on that is because if production is adding to their debt, increasing production just digs their hole even deeper. It is one thing to be cash flow negative because of capital investments, but production should be cash flow positive for them to have any hope of surviving.

I feel that if they can get their production line cash flow positive, then they are on a decent footing to make it as a company. That will mean they can improve their cash situation by producing more vehicles and pay off some of the production expansion capital investment by producing more vehicles.

As of today, every vehicle produced reduces their cash balance. Survival is impossible if that doesn't change. IMO it is the most important metric.

 

[Dave Cundiff]

The reason I am focused on that is because if production is adding to their debt, increasing production just digs their hole even deeper. It is one thing to be cash flow negative because of capital investments, but production should be cash flow positive for them to have any hope of surviving. ...

As of today, every vehicle produced reduces their cash balance. Survival is impossible if that doesn't change. IMO it is the most important metric.

I think you know the problem with that logic, @mkhuffman, but I think you could have said it better.

The arithmetic is different for manufacturers than it is for producers. If Macy's pays more for its average product than it sells it for, their "cost of goods sold" will hurt them worse if they increase volume while keeping all other parameters the same. In manufacturing, however, unit costs are dramatically affected by "economies of scale."

In manufacturing, the "marginal cost" phenomenon means that producing and selling one more vehicle can be profitable even if the "fully allocated cost" (averaged over many vehicles) is still unprofitable.

Said another way, the cost of producing the first vehicle (designing, testing, equipping and staffing the production line, and all the other overhead costs) may be more than a billion dollars ($1,000,000,000). The marginal cost of producing the second vehicle might still be millions of dollars. But by the time you get past, say, 10,000 vehicles, the cost of producing vehicle #10,001 may be quite a bit less than the sales price.

I'm sure Rivian executives are well aware that "gross profit" reflects fully allocated (average) costs and revenues, but they need to make decisions based on "marginal cost and revenue" from those decisions.

So they need to increase volume -- of production, sales, and service -- in order to achieve a gross profit. Increased volume -- which spreads the fixed costs over a larger number of units -- is a large part of what turns a negative gross profit into a positive one.

Very best wishes!

 

[HaveBlue]

Good assessment.

What is the $4k number you are referencing?

"Cost of revenues for the second quarter of 2024 included $59 million, or approximately $4,278
per vehicle delivered, of costs we do not anticipate being part of our long-term cost structure.
This was made up of $33 million of cost of revenue efficiency initiatives primarily related to
certain supplier liabilities incurred and $26 million of accelerated depreciation associated with
the updates made to our Normal Factory during the plant retooling upgrade. "

Maybe I got excited and read that as revenue exceeded hard costs by $4278 but now reading it again they are saying gen2 direct costs saves them $4278 per car. That word salad goes on to say that there's $500m total they have to write off/down in old commitments and costs that shouldn't be there by Q4 and will make them "positive"

"The second quarter of 2024 was impacted by a charge for lower of cost or net realizable value
(LCNRV) write-downs on inventory and losses on firm purchase commitments. Our ending
inventory balance includes LCNRV write-downs of $148 million while liabilities for losses on firm
purchase commitments were $31 million, for a total of $179 million at the end of the second
quarter of 2024 as compared to our ending inventory balance LCNRV write-downs of $379 million
and liabilities for losses on firm purchase commitments of $179 million, for a total of $558 million
at the end of the second quarter of 2023. The decrease is primarily due to a decrease in the cost
to manufacture our products as a result of increased vehicle deliveries and lower material costs.
We expect the amount of LCNRV write-downs and losses on firm purchase commitments to
decrease over time, which we anticipate will have the effect of increasing net inventory balances,
and decreasing cost of revenues per vehicle. Furthermore, we forecast reaching modest positive
gross profit in the fourth quarter of 2024 and therefore expect that by the end of 2024, we will not
have material LCNRV write-downs of inventory associated with goods manufactured at our
Normal Factory or losses on firm purchase commitments."

 

[Jeep Addict]

<$0.02>
Investor calls are "tuned" for institutional investors. Retail investors get to tag along. The 10Q is published for those who gain enjoyment from parsing high level figures and looking for hidden meaning, but these do not and have never contained granular data. Rivian telegraphed what was going to be delivered fairly well.

There's nothing in the report that differs significantly for what was expected, and the results were better than consensus estimates in key metrics from folks whose day job is fortune telling.

The loss per vehicle is not entirely a unit material cost issue, although that's probably the biggest slice. Rivian has to increase volume. To increase volume they have to enlarge their addressable market. The proportion of buyers willing and able to support a >$70k vehicles is much smaller than the market for vehicles in the $40k-ish range.

The fixed cost apportioned to each vehicle is driving a BIG chunk of the cost of revenues per vehicle loss. Volume is going to get them to positive gross profit, but they have to have demand, not just capacity and lower unit material costs. The importance of the R2 and R3 (midsize platform) can't be understated in relation to Rivian getting to positive EBITDA instead of holding a cardboard sign on the off ramp.

Some nuggets from the MD&A I thought were interesting:

• @HaveBlue mentioned, it looks like part of the performance hit is related to supplier agreements, stranded inventory, and accelerated depreciation of old process infrastructure related to Gen 1 designs.
  
  
• Leasing has driven volume.
  I looked for a change in the impact of the risk of variance in residual valuation of leased vehicles. I suspected that Rivian has subsidized the lease deals, there's no way Chase became generous, it's not a small figure and is aggregated on the balance sheet as “Other non-current liabilities” and MD&A has said it's not a material concern, that's one I'll continue to watch.
  
  
• R&D spending decreased, because the design work related to Gen2 manufacturability and cost reduction is mostly completed, maybe?
  
  
• SG&A keeps increasing (which may be a good sign?)
  The increase is attributed to "...service and sales headcount" increases and "...an increase in service centers and spaces" they're needed and it says they plan on continuing the spend.
  
  
• Tick mentality vs. "you want fries with that"
  "Ability to Convert our Customers to Subscribers of our Services.", they list a bunch of ancillary services (fries): "...financing, leasing, insurance, vehicle maintenance and repair, charging, and FleetOS solutions..." , OK, these drive some potential value for owners. Then they launch into fantasy land where they want me to drop a quarter in a slot to start my drive creating " ...recurring revenue stream for each vehicle, therefore improving our margin profile. Our ability to grow revenues and our long-term financial performance will depend in part on our ability to drive adoption of these offerings at profitable price points." They pimp "Connect+" and the "Rivian Autonomy Platform+" as drivers for this imagined revenue stream, when in their current iterations aren't even polished turds. Rivian has to do much better at creating compelling value to get recurring revenue than these half baked offerings to be credible in my opinion.

Aside from that insult, I am comfortable with my investment, full disclosure, I bought the dip, this is a value hold purchase for me, stock wise that is.
</$0.02>

 

[mkhuffman]

"Cost of revenues for the second quarter of 2024 included $59 million, or approximately $4,278
per vehicle delivered, of costs we do not anticipate being part of our long-term cost structure.
This was made up of $33 million of cost of revenue efficiency initiatives primarily related to
certain supplier liabilities incurred and $26 million of accelerated depreciation associated with
the updates made to our Normal Factory during the plant retooling upgrade. "

Maybe I got excited and read that as revenue exceeded hard costs by $4278 but now reading it again they are saying gen2 direct costs saves them $4278 per car. That word salad goes on to say that there's $500m total they have to write off/down in old commitments and costs that shouldn't be there by Q4 and will make them "positive"

"The second quarter of 2024 was impacted by a charge for lower of cost or net realizable value
(LCNRV) write-downs on inventory and losses on firm purchase commitments. Our ending
inventory balance includes LCNRV write-downs of $148 million while liabilities for losses on firm
purchase commitments were $31 million, for a total of $179 million at the end of the second
quarter of 2024 as compared to our ending inventory balance LCNRV write-downs of $379 million
and liabilities for losses on firm purchase commitments of $179 million, for a total of $558 million
at the end of the second quarter of 2023. The decrease is primarily due to a decrease in the cost
to manufacture our products as a result of increased vehicle deliveries and lower material costs.
We expect the amount of LCNRV write-downs and losses on firm purchase commitments to
decrease over time, which we anticipate will have the effect of increasing net inventory balances,
and decreasing cost of revenues per vehicle. Furthermore, we forecast reaching modest positive
gross profit in the fourth quarter of 2024 and therefore expect that by the end of 2024, we will not
have material LCNRV write-downs of inventory associated with goods manufactured at our
Normal Factory or losses on firm purchase commitments."

Reading the excerpt from their report that you included in your thread, it sounds like that 4K is the current negative cash flow from production. But you are interpreting it differently. What did you see that helps you conclude it is savings from Gen2 changes?

It shouldn't be this hard to figure out, IMO. They need to make it more clear for the investor to really understand what is happening with the company.

 

[HaveBlue]

Reading the excerpt from their report that you included in your thread, it sounds like that 4K is the current negative cash flow from production. But you are interpreting it differently. What did you see that helps you conclude it is savings from Gen2 changes?

It shouldn't be this hard to figure out, IMO. They need to make it more clear for the investor to really understand what is happening with the company.

"Accelerated Depreciation of assets related to retooling the factory" is a nice way of saying they are writing off stuff they previously put in that is now worthless and they can't sell at the garage sale, lol.

 

[DCFC]

I am curious how the 3rd quarter numbers will look considering Rivian laid off ~11% of it's workforce split between Q1 and Q2. Rivian paid out 2 months plus and annual bonuses. So I don't think it will be until 3rd quarter that there are no longer payments going to the laid-off employees. That's maybe a ballpark savings of $40 million a quarter.

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