Great news for long-term Rivian investors

Investors may not fully appreciate what Rivian (RIVN -5.23%) has already achieved so far in its young history. Starting an automaker from scratch amid a complete industry transition from internal combustion engines to electric vehicles (EVs) was a tall order. Consider that 99 automakers starting with the letter “A” have gone bankrupt in the last few decades.

The great news for long-term investors in Rivian is that the company has a real chance to succeed, and the second quarter shows how much the company has done in terms of operations and cost reduction. Let’s break in!

The devil is in the details

There have been quite a few technical improvements in the company’s operations. One of the most overlooked improvements made over the summer came when Rivian updated its R1 vehicles to the second generation. While the addition of premium trim and new paint options could help spur demand, the big win has been increased efficiency and reduced costs.

More specifically, the second-generation R1 body was redesigned by eliminating 65 parts and reducing nearly 1,500 joints. In addition to the body improvements, the company improved cycle times throughout the plant to increase the vehicle production rate by 30 percent. In addition, the second generation R1 includes the new Ascent Tri internal drive, which improves performance and lowers the production cost by approximately 32%. The Enduro Dual Performance drivetrain lowers that cost even further, as you can see below.

Image source: Rivian Q2 presentation.

Another example found while digging through the details was the R1’s front crossmember of its battery pack, which was reduced by using high-pressure die-casting that allows for a 47% cost reduction. Rivian went from 17 electrical control units (ECUs) to seven, which eliminated 1.6 miles of wiring length and significantly reduced ECU cost.

These aforementioned improvements, combined with improved commercial costs and commodity tailwinds, are expected to create a 20% reduction in materials costs when comparing vehicles produced in the first quarter of 2024 to those that will be produced in the second quarter. fourth quarter of 2024 – critical for the company. generating positive gross margins this year.

Finally, combining many of the cost reductions and efficiency improvements, Rivian improved cash used in operating activities by 41% from the first quarter of 2024. Developments like this are the difference between a company that will continue to attract investment, as would be Volkswagenhis commitment of up to $5 billion and companies closing their doors like Fisker.

What does it all mean?

Volkswagen’s commitment and future joint venture brings up a development that some investors are overlooking: the company’s in-house software creation. Rivian develops the vast majority of its software, which has been intentionally designed to be scalable and applicable to many varied hardware configurations. In essence, Rivian’s vertically integrated software platform could be used by other automakers investing in Rivian for joint ventures, such as Volkswagen, or perhaps in a licensing agreement that could generate revenue for the company down the road .

The most important things for investors to watch going forward are the company’s ability to reduce costs, maintain shipments at forecast levels and achieve a positive gross profit in the fourth quarter. Rivian has already improved its losses per vehicle, which went from a loss of $38,700 per vehicle in the first quarter to $32,700 per vehicle during the second quarter.

Rivian’s second quarter wasn’t enough to convince the markets to push the stock higher, but keep in mind that Rivian’s stock rose more than 90% between May and mid-July. If investors dig into the details of the second quarter, there was a lot to like about the cost cuts, efficiency improvements and its cash flow expected to last into R2 vehicle production into 2026.