How is Rivian going to make up the loss?

[SeaGeo]

I doubt any 3rd party would ever possibility with a closed network like Rivian (Tesla) but I havent looked too much into tesla extended warranties. Do those exist?

No idea.

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[voxel]

That's different than charging customers you already tried pissed off.

And they're trying to salvage it. Obviously.

All that matters is shareholders - you can't tell them... we're going to lose $20K per EV for 3+ years.

I suspect Rivian will pull a Tesla/Ford/VW... and build higher profit trims (read: new orders at full price) once production ramps up to expected levels. Budget builds or older orders will be fulfilled with spare capacity.

 

[Taycanfrank]

It's interesting to see responses suggesting they can just eat the lost profits. Clearly they decided they can't do that, or they wouldn't have made the decision in the first place. This isn't my opinion, it's theirs.

This wasn't a last second decision, they planned, calculated, and decided a 20% increase to their one product was required immediately before they had begun significant deliveries. They knew there would be negative feedback but had decided it was still necessary going forward. Of course, they didn't expect so much negative feedback and such a large hit to their reservations, reputation, & stocks.

This isn't pro/con the initial decision, the company, etc.. It's just very much the same as any business, if your accountant comes to you saying "ran the numbers many times and we have to increase product cost by 20%" you say nope, won't do it.. the accountant is going to find another way to make it work.

Maybe part of this is they kill bonuses, maybe they kill the Forever fund, maybe it never influences the building process. But if they thought they could eat the loss on preorders they wouldn't have taken the risk of raising prices on them in the first place.

 

[Rise1Set]

It's interesting to see responses suggesting they can just eat the lost profits. Clearly they decided they can't do that, or they wouldn't have made the decision in the first place. This isn't my opinion, it's theirs.

This wasn't a last second decision, they planned, calculated, and decided a 20% increase to their one product was required immediately before they had begun significant deliveries. They knew there would be negative feedback but had decided it was still necessary going forward. Of course, they didn't expect so much negative feedback and such a large hit to their reservations, reputation, & stocks.

This isn't pro/con the initial decision, the company, etc.. It's just very much the same as any business, if your accountant comes to you saying "ran the numbers many times and we have to increase product cost by 20%" you say nope, won't do it.. the accountant is going to find another way to make it work.

Maybe part of this is they kill bonuses, maybe they kill the Forever fund, maybe it never influences the building process. But if they thought they could eat the loss on preorders they wouldn't have taken the risk of raising prices on them in the first place.

While I understand your point, I don’t quite agree for this reason. If Rivian really could not afford to take the loss, ever, that would have meant they just wrote their death sentence by reversing the price hike to save face with their pre-order holders which would be a decision that is monumentally worse than the original decision to set a price hike.

 

[lostpacket]

 

[Longhorngirl]

I think that we may have all been thinking about this wrong. Maybe this wasn’t about how much money they were going to lose, but reducing the number of orders. Rivian was never going to become profitable selling the R1T and R1S. It was always about mass selling their R2 vehicles, which have not yet been announced. The error that Rivian made was setting a low ball price for the R1T and R1S and too many people preordered. They needed to cull a certain amount of orders to guarantee that by the time the Georgia plant is open, they can concentrate on the R2 vehicles and not still dealing with the backlog of R1 vehicles, which they don’t make money on.

Below is a chart of the number of Tesla sales by model.

 

[Mr.Bourne]

I am expecting Tsunami of flipping by preorder holders for the new price.

 

[SANZC02]

I think that we may have all been thinking about this wrong. Maybe this wasn’t about how much money they were going to lose, but reducing the number of orders. Rivian was never going to become profitable selling the R1T and R1S. It was always about mass selling their R2 vehicles, which have not yet been announced. The error that Rivian made was setting a low ball price for the R1T and R1S and too many people preordered. They needed to cull a certain amount of orders to guarantee that by the time the Georgia plant is open, they can concentrate on the R2 vehicles and not still dealing with the backlog of R1 vehicles, which they don’t make money on.

Below is a chart of the number of Tesla sales by model.

You cannot really use the 2021 numbers for Model S/X, they pulled them from the market for the rework, had issues getting it done and then with supply chain so really had none to sell. I don’t think they even had a Model X to sell in 2021 and most of those 2021 numbers are Model S.

 

[EVTruckSeeker]

I think if I were RJ, I would try to entice you guys to switch to the new pricing by calling it a new gen with some new features not available on the old gen. I don’t know if it’s possible but since they are developing their own motors in-house. They can make them more efficient and perhaps try to achieve the same range on a large battery as a max battery on the old gen.

 

[nc10]

….. how are they going to make up the projected loss?

You can also factor in the short If they felt they could absorb the loss I don't see why they would have made the decision in the first place. So how are they going to find ways to make up the difference?

Not completely clear to me, but I expect the Normal plant is 2 years away from running at design rates? Plus Rivian is building a new factory in Georgia, hope to start a battery factory soon, launching new vehicles. So really hard to see positive cash flow for 5 years or so, just too many startups, capital expenditures, etc that add costs that ramp up faster than sales will ramp up.

Getting EV and Delivery vehicle plants built and up to full rates sooner will be absolutely critical. Even Rivian's IPO billions won't last long. Need to get it invested and productive ASAP.

Making people wait 2-3 years to fill orders won't be acceptable too much longer either, maybe another year? If Rivian can find ways to get the Normal plant debottlenecked beyond design rates with less capital/less time than building a new plant, would be huge for Rivian.

I hope their production and raw material costs are competitive with Tesla, Ford, GM, etc, Since Rivian is saying they need their own battery plant, I assume battery cost is a big concern. Can they get a battery plant built quickly and started up and running with good yields quickly? Hope so.

 

[Sean]

Some of you need to change your mindset from traditional business to startup/VC.

Yes, Rivian raised prices. But they were still going to operate at a loss for years. Inflation impacted this but raising prices was likely to stave off another funding round/stock offering. This is more about stock price and cashflow than profits.

RJ only has 11% voting power which means that he can be strong-armed to do things. My guess is that the price hike was an attempt to get the stock price back to trending up and project higher cashflow so that they can last longer without going back to the market for cash.

What will Rivian do in the meantime?

• Stay the course (eat the loss, perhaps they have enough buffer)
• Delay the Georgia plant, Europe plant, Battery factory or some other major capitol project (a dollar not spent is a dollar saved)
• Do something else to generate some cash like license some of their tech that they would otherwise have preferred to avoid
• Layoffs
• Issue more stock (least likely and thus likely a last resort if they get low on cash IMO as that devalues current stakeholders that have an outsized share of control)

 

[GoWest!]

Fire the Comms staff? Oh sorry I forgot, they don’t have one!

Another victim of the Great Resignation.

 

[lambo]

They make up the loss by being a good company and not screwing the customers. As happy customers, we return for more vehicles, we recommend friends to Rivian, etc. I don't see a practical way to make up those losses short-term.

100%

Before this week Rivian's brand was arguably their most valuable asset.

Rivian isn't good at building cars...yet. They aren't vertically integrated...yet. They don't offer the cars most customers want to buy...yet. But they were well on their way to establishing a great brand. They should focus on that by producing good quality vehicles in quantity and, despite losses, I believe the market will reward them.

How long did it take Amazon or Tesla to become profitable? Quite a while. If there's money to be made the market will be patient.

 

[lambo]

I think that we may have all been thinking about this wrong. Maybe this wasn’t about how much money they were going to lose, but reducing the number of orders. Rivian was never going to become profitable selling the R1T and R1S. It was always about mass selling their R2 vehicles, which have not yet been announced. The error that Rivian made was setting a low ball price for the R1T and R1S and too many people preordered. They needed to cull a certain amount of orders to guarantee that by the time the Georgia plant is open, they can concentrate on the R2 vehicles and not still dealing with the backlog of R1 vehicles, which they don’t make money on.

Below is a chart of the number of Tesla sales by model.

Looking at the Model S/X numbers leads me to conclude that leasing could be part of Rivian's answer. Perpetual cash flow that isn't tied directly to the pre-order selling price. Disclaimer: I've never leased a vehicle so I definitely don't know what I'm talking about.

 

[ThatOneGuy]

I think Rivian's factory plans will play a large part in mitigating the loss of preorder prices. As previous posters have said, Rivian needs to focus on establishing their brand to generate demand. While there is demand now, it's been accumulating for almost four years and will be cleared in the next two. By the time their backlog is cleared, they're supposed to have a second factory starting up production for... what exactly? If their Bloomington factory maxes out at 150k per year (?) and their annual demand doesn't max out their existing capacity (a reasonable prospect in 2024) then they will have a new factory in GA with a whole lot of expensive manufacturing capacity on payroll just sitting around unused. Not good for a company that isn't generating appreciable revenue.

With demand established as a key issue, how do they generate enough of it to sustain their operations? In addition to their current strategy, their #1 best advertisement will be a lot of vehicles driving around for average people to see on the road and post to social media about. A new, unique, attractive electric truck/SUV from a new awesome company driving around suburbia will generate buzz and orders. By churning out already reserved vehicles at a loss they're essentially funding advertisement that will generate demand for their manufacturing capacity coming online in 2024. However, if they had stayed the course and raised prices for preorder holders despite massive reservation cancellations then that would mean less vehicles on the road generating buzz, less interest in their brand, and less demand for their costly factories. They're going to have to operate at a loss until they can get vehicles on the road en masse to make the average person excited enough to purchase.

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