Rivian: The Wait Will Continue

Summary:

• Rivian reported Q4 revenues of $1.315 billion, beating analyst estimates, but missed adjusted bottom-line expectations.
• The company’s 2024 production guidance fell well short of street expectations, causing the stock to fall in the after-hours session.
• RIVN’s valuation has dropped recently, with shares trading at a large discount compared to Tesla, given its weaker financial state.

After the bell on Wednesday, we received fourth quarter results from Rivian (NASDAQ:RIVN), as seen in this shareholder letter. The electric vehicle maker has increased its production and revenues nicely over the past couple of years but has been plagued by large losses and cash burn. We saw many of the same trends in Q4, along with 2024 production guidance that missed street expectations, meaning investors will need to wait a bit longer for the story to play out here.

When I previously covered the name in December, Rivian shares had recently popped, so I recommended caution in the near term. The company did announce a debt offering to bolster its balance sheet, and Q3 results were not as rosy as some as hoped. Since then, shares have lost over 35% despite a huge market rally, with a number of electric vehicle names being hit on sales and interest rate concerns. Rivian pointed to some of these headwinds in its Q4 letter, noting the changing macro picture causing some cancellations from its order book.

For Q4, Rivian announced revenues of $1.315 billion, beating street estimates of $1.26 billion. While deliveries had dipped a bit over Q3 levels, mostly due to seasonality with shipments to Amazon (AMZN), revenues fared better due to some new higher-priced vehicle variants. Margins took a hit sequentially because those Amazon vans were a higher margin product, with the table below showing key results over time. The non-GAAP loss per share came in at $1.36, missing the street by 4 cents, the first miss from the company on the adjusted bottom line in two years.

2024 is expected to be a major turnaround year for the company’s margin picture, however. Rivian management is expecting to see a small gross profit in Q4, driven by major improvements in both material and fixed costs, as well as manufacturing efficiencies. Part of this process will be a shutdown of its Illinois factory that will deliver greater plant efficiency, with production rates expected to improve by approximately 30%. We should see more meaningful gross profits delivered in 2025, with operating losses hopefully at a minimum or maybe even gone altogether.

Rivian shares dropped a bit in Wednesday’s after-hours period because management guided to production this year of 57,000 vehicles, whereas street estimates called for deliveries of 66,000. I’m a little surprised that analysts were expecting that much growth, even with some sales from inventory, from the 57,232 vehicle figure we saw in 2023, given the major plant shutdown that we already knew about. Also, I should note that the 2023 full-year number came in well above the 50,000 figure that management guided to originally for 2023, which itself was seen as a big disappointment. I think Rivian is being a little conservative here given the uncertainty regarding the plant’s downtime, so it wouldn’t shock me to see more than 57,000 vehicles produced when all is said and done.

As the table above shows, Rivian is still burning a lot of cash. While the cash balance did increase sequentially, that was due to the debt offering seen during Q4. Total debt now stands at $4.4 billion, with a lot of convertible notes that wouldn’t convert at current equity prices. While Adjusted EBITDA is expected to improve from negative $3.98 billion last year to negative $2.7 billion, we are likely to see the company burn through a few billion more in capital moving forward. Thus, it would not surprise me if we see another capital raise, which at the moment could be another debt deal given how much shares have fallen recently.

Since my last article, the valuation argument has changed quite a bit, with the stock falling considerably. Rivian shares finished Wednesday going for just 2.5 times their expected revenue for this year, less than half of what US EV leader Tesla (TSLA) goes for at nearly 5.6 times. Given Rivian’s financial picture and limited production growth at the moment, a large discount to Tesla seems warranted The street saw Rivian as worth almost $25 going into this report, down from almost $137 right after the IPO, but I’m guessing we’ll see some target cuts after the weaker than expected 2024 production guidance.

As for my personal rating, I am keeping a hold on the stock for now. I do think there are brighter days ahead for Rivian, but the production changeover will add some short-term volatility to the results. Losses and cash burn haven’t improved as much to this point as some had hoped, so management does have to prove itself a bit here as we head into 2025. The valuation is a lot better now than it was a few months ago, but I can’t recommend buying until we get through these next couple of quarters. I also would like to see another capital raise to bolster the balance sheet as Rivian gets ready to build out its second plant to launch the R2 platform in 2026.

In the end, Rivian shares dropped after the company guided to a slight production decline in 2024. While Q4 revenues beat the street, the shifting sales mix weighed on margins in the quarter, leading the adjusted bottom line to miss estimates. Large losses and cash burn are ongoing, but hopefully will improve dramatically over the next couple of years. Investors seem quite disappointed so far with 2024 production guidance, but management has been known for being conservative, and the plant shutdown wasn’t exactly a surprise. While I do believe in Rivian’s future, I can’t recommend buying just yet, as there are another couple of tough quarters to digest here.

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