It would be easy to conclude electric vehicle manufacturer Rivian Automotive (RIVN 3.59%) will never be able to turn an actual profit. It's not just losing money: Last year's loss of more than $6.8 billion is a whopping four times greater than its 2022 top line of less than $1.7 billion. In 2022 the company lost on the order of $300,000 for every car it made. Fiscal viability seems far out of reach.
Adding insult to injury, rival Tesla (TSLA -3.36%) is net-profitable, while Nio (NIO 1.46%) is at least selling its EVs for more than its direct costs to manufacture them.
As the old cliché goes, though, past performance doesn't indicate future results. There's hope for Rivian on the (distant) horizon. You just have to read a bit of proverbial fine print to see it.
Image source: Rivian Automotive.
Lots of losses
If you know the company at all, then you know Rivian Automotive is still a bit of a start-up, and can be expected to still be in the red.
On the other hand, it is making electrified automobiles at scale now. It manufactured 24,337 of them in 2022, with 10,020 being made last quarter alone. All told, it sold $1.66 billion worth of EVs last year, at a price in the ballpark of $80,000 each.
Problem? The company lost over $280,000 per vehicle it manufactured last year; it lost $3.1 billion just making the things, before factoring in the cost of marketing, administration, research and development, and interest payments on loans. That's still an operational/manufacturing loss of nearly $130,000 per car. As noted, actual profits seem miles out of reach.
Don't give up hope just yet, however. Help -- big help -- is on the way.
Rivian is getting better as it gets bigger
You have to dig into last quarter's letter to shareholders to find it, but it's there. Last year, Rivian Automotive booked an accounting charge of $920 million on the devaluation of inventory and its previously made purchase commitments. These expenses have nothing to do with the actual manufacturing of automobiles. Nevertheless, they're expenses added to the company's cost of goods sold.
The thing is, without these charges, Rivian's per-car operating loss would have been pared back to a more encouraging $90,000.Now we're getting somewhere.
Perhaps the real expense thus far worth noting, however, is how the EV maker is handling the ramp-up of the output of its assembly line. There are a lot of people working to get its manufacturing facilities running at full capacity, but that takes time -- they aren't making a lot of cars just yet. The Q4 shareholder letter explains:
Our total cost of goods sold was also negatively impacted by the ramping of our second manufacturing shift. As we produce vehicles at low volumes on production lines designed for higher volumes, we have and will continue to experience negative gross profit driven by labor, depreciation, and overhead costs.
We don't know what that means in terms of an actual number. We do know, however, that Rivian intends to double last year's total production this year, bringing its total output to 50,000 electric vehicles. If that doesn't get the company's total per-car production costs below the typical sales price of around $80,000, it'll certainly get it close to that mark.
To this end, note how per-car profitability is already improving as per-car production costs are coming down.
Data source: Rivian Automotive. Chart by author.
This improvement of course is mostly a function of scale, more of which is on the way.
A compelling speculation
This doesn't mean Rivian will necessarily turn a net profit this year, or even next year.
The company concedes in the same letter to shareholders that it expects to book big inventory-related charges again this year, with gross profits only in the cards beginning in 2024. And even then, it's still going to have lots of administrative and developmental bills to pay. It shelled out $3.7 billion for this kind of stuff last year, spending more on it than the company spent on actual vehicle production.
These administrative costs are relatively static, though, actually coming down a bit in 2022 from 2021's total. If they expand as Rivian ramps up its production, it's not likely they'll grow to the same extent revenue does.
The dynamic may not put net profits in sight for 2024, but it does at least put real profits on the radar. Sometimes that's enough to draw a crowd of buyers to (or, in this case, back to) a stock.
It's still not for everyone's portfolio. This stock brings above-average risk to the table simply because the company's still losing money, without any great clarity as to when it may work its way out of the red and into the black. It's also just plain volatile for this same reason.
Nevertheless, sometimes reasonable hope for an eventual profit is enough. Stocks tend to trade based on where a company is going rather than where it's been. Rivian Automotive at least moving in the right direction. The market could -- and arguably should -- start to see this again soon.
