RJ Scaringe, CEO of Rivian (NASDAQ: RIVN), announced on Thursday that the company aims to reduce material costs for its electric SUVs and pickups by 20% by the end of 2024. This cost-cutting initiative follows a recent factory overhaul and a vehicle redesign, all part of Rivian’s strategy to achieve profitability.
Despite this positive outlook, RIVN stock experienced a notable decline, falling as much as 8.9% during the day. However, the loss moderated to less than 3% after the company reaffirmed its forecast for largely flat annual production growth.
The stock had risen 23% after its best-ever one-day gain of 23% on Wednesday after Volkswagen said it would invest up to $5 billion in Rivian as part of a joint venture for its EV architecture and software.
The move is widely seen as a “vote of confidence” in the American automaker’s prospects as it looks to build less expensive R2 and R3 crossovers. The tie-up with Volkswagen is expected to help reduce operating expenses at Rivian as production volumes rise.
COST SAVINGS
Scaringe also said that the material costs for its smaller and less expensive R2 vehicles will be 45% lower than for its flagship R1 vehicles.
“Incredible focus and discipline around electronics in the vehicle will represent one of the biggest cost savings in R2 relative to R1,” Scaringe said at the company’s first investor day since going public in November 2021.
Rivian shut down its Normal, Illinois plant for three weeks in April to streamline processes, remove equipment, and eliminate over 500 parts to reduce vehicle production costs.
A similar exercise last year helped Rivian cut 35% in material costs from its electric vans, Scaringe told Reuters last week.
Amazon-backed Rivian lost about $39,000 per vehicle sold in the first quarter, but the company is confident it will post its first quarterly gross profit in the fourth quarter.
Rivian will produce R2 vehicles at its current Illinois facility instead of a planned Georgia plant to conserve cash. The company is also renegotiating supplier contracts and increasing in-house production to manage costs more effectively.
The company’s presentation during investor day also teased five new models, with three vehicles under the “affordable mass market” category.
LONG-TERM FINANCIAL TARGETS
Demand for electric vehicles has faltered amid high borrowing costs, and as buyers turn to cheaper gasoline-electric hybrid vehicles.
The slowdown has hit even market leader Tesla, which is expected to report its first drop in annual sales this year.
EV makers including Tesla have been cutting prices, offering incentives, and introducing lower-priced variants to boost sales.
Rivian, however, is on stronger footing than most EV startups. Some of its peers such as Fisker have filed for bankruptcy.
In the long term, Rivian targets a gross profit margin of 25% and an adjusted core profit margin in the high teens, finance chief Claire McDonough said.
Rivian had nearly $6 billion of cash and cash equivalents at the end of the March quarter.
The company plans to produce 9,100 to 9,300 units in Q2 and deliver 13,000 to 13,300 vehicles to customers from April to June.
Analysts polled by Visible Alpha anticipate Rivian to report 10,282 units delivered and 9,369 vehicles produced for the quarter ending July 2.
The company maintains its 2024 production forecast at 57,000 units, consistent with 2023 levels.
(Some edits are from Reuters)
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