Rivian investor day focuses on cost reductions, efficiencies and next-generation EVs

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A Thursday investor event for Rivian Automotive that focused on cost-cutting efforts, efficiency gains and in-house technologies and software wasn't enough to build on the company's significant share growth this week.

Shares of the all-electric vehicle startup fell by about 2% to 6% for much of the event, eating into some of its 23% gain in shares the day before on news of an up to $5 billion investment by Volkswagen Group. Shares remain off by roughly 40% year to date amid significant cash burn and a slowdown in EV sales.

Rivian on Thursday reconfirmed its 2024 guidance that included production of 57,000 vehicles and a path to positive gross profit during the fourth quarter, including regulatory credits. It also outlined longer-term growths, such as plans to achieve positive adjusted earnings before interest, taxes, depreciation and amortization in 2027.

"Everything that you're hearing from us, around our product, around how we're running the business, around how we're driving toward profitability, my hope is that you're seeing really an extreme sense of urgency," Rivian CEO RJ Scaringe said during the event. "We're very, very fast driving towards the improvements necessary to get to positive free cash flow and, before that, positive margins this year."

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Rivian also outlined long-term financial targets of a roughly 25% gross margin, 10% free cash flow and adjusted profit margin in the "high teens." The company did not release a time frame for these targets.

Scaringe spent much of his time during the roughly four-hour presentation discussing efficiencies in products and manufacturing, which he said are expected to lead to 20% material cost reductions in its current vehicles, followed by 45% targeted reductions in its upcoming "R2" vehicles, which are projected to begin production in early 2026.

The reductions range from physical savings, such as a 54% decrease in design costs of its R2 vehicles compared with current models, to lower costs on more complex systems such as battery packs and electrical hardware. For example, the company is using 10 fewer in-house electronic control units, or ECUs, in its recently redesigned R1 vehicles, allowing it to remove 1.6 miles in wiring harness length and 44 pounds out of the vehicle.

Rivian's software expertise is at the center of VW's plans to invest $5 billion in the automaker by 2026, including an anticipated joint venture between the companies to create electrical architecture and software technology.

Volkswagen is expected to use Rivian's electrical architecture and software stack for vehicles beginning in the second half of the decade, Scaringe said during the investment announcement. He said the joint venture does not include anything with battery technologies, vehicle propulsion platforms, high voltage systems or autonomy and electrical hardware.

A provided image of Oliver Blume, CEO of Volkswagen Group and RJ Scaringe, founder and CEO of Rivian, as the companies announce joint venture plans on June 25, 2024.Courtesy: Business Wire

Rivian finance chief Claire McDonough reaffirmed Thursday that the capital from VW is expected to strengthen the startup's balance sheet, which ended the first quarter with $7.9 billion in cash.

The capital influx is expected to carry Rivian through the production ramp-up of its smaller R2 SUVs at its plant in Normal, Illinois, starting in 2026, as well as production of its midsize EV platform at a currently paused plant in Georgia.

Rivian is betting on its next-generation all-electric vehicles to carry the automaker's growth and targeted profitability during the second half of this decade.

The company said Thursday it expects production of its R2 next-generation vehicles to represent up to 72%, or 155,000 units, of its more than 200,000-unit production capacity at its plant in Illinois. The plant currently has the capability to produce 150,000 commercial delivery vans as well as its flagship R1 SUV and pickup EVs.

The automaker's $2 billion plant in Georgia, construction of which was suspended earlier this year to save capital, is expected to be capable of producing 400,000 units on two lines.

That construction suspension was a major part of the company's plans to reduce planned capital expenditures by $2.5 billion through 2025, including reductions of 55% in manufacturing and 20% in product development. The company still expects to spend about $2.7 billion through 2025, McDonough said Thursday.

"We've focused on material cost and really reducing the overall cost of goods sold, as well as our operating expenses," she said. "Capex is another key lever for us that we focused on as well over the course of the last few years that will be central to our long-term success in bringing and scaling our R2 in the market."