How much progress has Rivian really made?

One of the biggest talking points for Rivian (RIVN 2.87%) was that it would generate positive gross profit in the fourth quarter — and that’s a big milestone worth celebrating. But the truth is, when you look at the progress the company has made so far, it becomes apparent how much work the company still has. This becomes a little more troubling when deliveries are expected to be roughly flat from year to year. Let’s take a look at the progress so far and Rivian’s plan to take the final steps toward its gross profit goals.

Numbers never lie

One of the numbers that made a big talking point in quotes, interviews and articles came from the fourth quarter of 2023. In its letter to shareholders, Rivian pointed out that it improved its gross profit per vehicle by about $81,000. While that’s accurate, when you look at Rivian’s progress over time, it doesn’t show straight-line progress, and another accurate number might be that Rivian’s gross profit per vehicle got worse from the second quarter of 2023 to in the second quarter of 2024.

Chart by author. Data source: letters from Rivian shareholders.

That’s not to say Rivian hasn’t made progress; it definitely has. It’s also fair to say that any comparison would have looked pretty good compared to the fourth quarter of 2022. Rivian also needs to eliminate all possible deliveries and realize the production improvements achieved from its plant replenishment.

Can Rivian do it?

Of course, Rivian may turn a small gross profit in the fourth quarter; management wouldn’t let investors and analysts down if it wasn’t confident it could achieve its goal. Luckily, Rivian also gave us a little roadmap on how they could close the gap to gross profit.

There are three main drivers for Rivian to close the gap between the fourth quarter of 2023 and positive gross profit in the fourth quarter of this year.

First, about 15% of this gap will come from non-vehicle revenues. More specifically, with approximately 97,000 Rivian vehicles on the road by the second quarter of 2024, there is an opportunity for increased revenue from services, accessories, finance, insurance and software-enabled services. While this might be the smallest part of the gap covered, it is critical to the company’s long-term margin goals.

Second, about 35% of this gap will come from fixed and semi-fixed cost efficiencies. Due to plant closures, repurposing, design changes and optimization initiatives, management expects to significantly reduce fixed costs per vehicle. When Rivian made design changes to the R1 vehicles, it reengineered hundreds of hardware improvements and eliminated 65 parts and nearly 1,500 joints. The second generation R1 also includes the new Ascent Tri internal drive, which reduces production costs by around 32%.

Last but certainly not least, 50% of the gap will come from the improved variable cost per unit. Rivian’s optimization initiatives improved negotiations with commercial suppliers and reduced raw material costs.

What should investors think?

Ultimately, this serves as a good reminder that progress rarely happens in a straight line and that investors should always look to the numbers for better context. If Rivian posts a gross profit in the fourth quarter, it will take a big step toward proving that it can one day generate a net profit. It’s also important for investors to consider an investment like Rivian as highly volatile and speculative, as the company has a long way to go before turning a net profit.