Cooling EV Demand Finally Hits Rivian Where It Hurts

Cooling EV Demand Finally Hits Rivian Where It Hurts

It was inevitable that Rivian Automotive (NASDAQ: RIVN) would eventually catch the same cold that had swept over the electric vehicle industry: cooling demand. While the young EV maker had spent much of 2023 topping production estimates — even raising guidance and refusing to slash prices with a list of competitors — slowing EV demand finally hit Rivian and became evident during its fourth-quarter earnings report.

Here’s a look at the good news, the disappointing future guidance, and perhaps a silver lining in the results.

It wasn’t all bad

Deliveries increased to nearly 14,000 during the fourth quarter, up from the prior year’s 8,054. That helped push total revenue to $1.32 billion, which was in line with Wall Street estimates and well above the prior year’s $663 million.

Further, Rivian’s net loss in the fourth quarter checked in at $1.52 billion, which was an improvement over the prior year’s $1.72 billion although the company continues to burn through cash at a rapid rate.

Rivian also improved its gross profit per vehicle by roughly $81,000 compared to the prior year and claimed the top-selling electric vehicle over $70,000 in the U.S. market for 2023.

Disappointing guidance

Then, the rougher news started to trickle in, starting with the announcement that Rivian would cut its salaried workforce by 10% and that its production in 2024 would be flat at 57,000 vehicles. That 2024 guidance is certainly disappointing compared to Wall Street estimates that reached as high as 81,700 vehicles.

Rivian’s production guidance was especially disappointing, considering that the company had momentum exiting 2023 after more than doubling its production and deliveries compared to 2022. Further, Rivian’s annualized run rate during the fourth quarter reached 70,000, signaling that the company would have had capacity if the EV sales growth in the U.S. hadn’t slowed.

What’s the silver lining?

The good news is that investors might expect management to pull back on its target to become gross profit-positive during 2024 after such disappointing production guidance, but that doesn’t appear to be the case.

In fact, Rivian is planning a production shutdown during the second quarter to upgrade its production line, switch around some suppliers, improve efficiency, and cut costs. In addition to those production-line upgrades, lower costs of raw materials should still enable Rivian to become gross profit-positive very late in 2024, which is definitely a silver lining considering the flat production guidance.

How investors should feel

This wasn’t an awful quarter from Rivian, despite the stock price decline following the announcement. It’s simply a disappointing 2024 guidance due to the harsh reality of very high interest rates that make expensive EVs less affordable and slows demand.

These bumps are to be expected, and for long-term investors, the focus now moves to the company’s more affordable and upcoming R2 platform vehicles. R2 will be unveiled in March and all eyes will be on how the company stays on track, hopefully without delays and cost overruns, to getting its second factory up and running.

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.