Rivian’s costly ride to electric dominance
Rivian’s High Praise vs. High Costs
Rivian’s R1T electric truck and R1S SUV have garnered accolades from reviewers, but their starting price of $74,800 hardly screams “bargain.” However, a closer look reveals a different story. When factoring in the substantial $33,000 loss Rivian incurs for each vehicle sold, suddenly the R1S and R1T appear to be everyday deals, reminiscent of Cyber Monday discounts that are available year-round.
Burning Cash and Making Sacrifices
This $33,000 hit per EV, as highlighted by the Wall Street Journal, is a significant blow to Rivian. To put it in perspective, it’s equivalent to the starting price of a base ICE Ford F-150. This financial setback is swiftly depleting Rivian’s substantial $18 billion cash reserve. Part of this financial strain can be attributed to Rivian’s Normal, Illinois, production plant operating at only one-third capacity in order to align with the ambitious 52,000-unit production target for this year. Additionally, Rivian’s vehicles are inherently more complex to manufacture than competitors like Ford’s F-150 Lightning.
Costly Agreements and the Path Forward
Rivian’s financial challenges are further compounded by unfavorable agreements made with parts suppliers several years ago, resulting in overcharged components, according to the WSJ. In response to these hurdles, Rivian’s CEO, RJ Scaringe, has reportedly tasked his engineers with slashing $40,000 in costs from each vehicle, encompassing both parts and production expenses, although the company has not officially confirmed this target.
A Daunting Road to Profitability
While Rivian seeks ways to reduce costs, Wells Fargo analyst Colin Langan suggests that achieving gross profitability by the end of 2024 will require additional measures. Rivian had already raised prices by up to 20 percent on certain models the previous year. Langan believes that Rivian might need to further increase its vehicle prices, potentially averaging nearly $100,000—$20,000 more than current levels—and optimize factory capacity utilization to establish sound financial footing. However, amidst a backdrop of Tesla initiating an EV price war and preparing to launch its own R1T competitor, the Cybertruck, Rivian’s aspirations may present a formidable challenge.
