Massive inventory write downs and firm purchase losses

[BlueMars]

Would anyone shed some light on the background of those massive inventory write downs and firm purchase losses? I'm kind of new to Rivian stock though I know their products for some time now.

1. 500 million inventory write down per quarter means about 5000 R1S worth of materials being writen down, when they only produce about 10k of them. How did this happen? Did they order too many old parts that can no longer be used? Never seen such massive write downs in other automakers and I've tracked many of them.

2. Firm purchase commitment losses - I would assume this is some kind of penalty payment to suppliers as they did not purchase enough parts as in contract?

Either way, this is a huge failure for supply chain team. Noticed Rivian supply chain VP just left so in some degree he might be held accountable for those massive write downs. This is just throwing money down into drain.

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[DuoRivians]

Read about LCNRV

 

[BlueMars]

Read about LCNRV

Yes read it already. Just curious how did it happen, very rare for other automakers for that kind amount.

 

[DuoRivians]

Yes read it already. Just curious how did it happen, very rare for other automakers for that kind amount.

Brand new auto company, height of pandemic, severe supply shortages everywhere. Rivian had no negotiating power but to pay up

 

[SANZC02]

Brand new auto company, height of pandemic, severe supply shortages everywhere. Rivian had no negotiating power but to pay up

This is true, RJ has spoke about this in a few interviews. He also discusses where they are in a better negotiation position now and are starting to see better contracts. Some of the write down could be a result of those better contracts where product in house that came in at the higher prices need to be readjusted for the new prices. In the long run this should help COGS in 2024.

 

[R1Tom]

I took a look at produced vs delivered and the gap currently stands at 7609 vehicles. Are there really 7609 vehicles in inventory across the country?

 

[DuoRivians]

I took a look at produced vs delivered and the gap currently stands at 7609 vehicles. Are there really 7609 vehicles in inventory across the country?

Lots of cars in middle of rail transport, prep etc.

The throughput rate of cars being produced is greater than throughput rate of delivery, which leads to a greater gap between p and d numbers as production increases.

Over time, hopefully Rivian increases the delivery rate

 

[echerod]

Would anyone shed some light on the background of those massive inventory write downs and firm purchase losses? I'm kind of new to Rivian stock though I know their products for some time now.

1. 500 million inventory write down per quarter means about 5000 R1S worth of materials being writen down, when they only produce about 10k of them. How did this happen? Did they order too many old parts that can no longer be used? Never seen such massive write downs in other automakers and I've tracked many of them.

2. Firm purchase commitment losses - I would assume this is some kind of penalty payment to suppliers as they did not purchase enough parts as in contract?

Either way, this is a huge failure for supply chain team. Noticed Rivian supply chain VP just left so in some degree he might be held accountable for those massive write downs. This is just throwing money down into drain.

You can’t tell from the numbers you included in your post, but if you look at Gross Profit per Unit Delivered you can see that the situation has been improving quarter to quarter as they have increased production volume (economies of scale), supply chain issues have been improving, and they have started selling higher margin units (post March 2022 pricing). All of those aspects should accelerate and make things better going forward, and in addition, the fact they are now selling dual-motor and max pack units (with higher margins) should also help them get closer to their goal of positive gross margin by the end of 2024.

 

[Riviot]

I took a look at produced vs delivered and the gap currently stands at 7609 vehicles. Are there really 7609 vehicles in inventory across the country?

Does it break out the products? It likely includes a surplus of EDVs Amazon isn't accepting.

 

[BlueMars]

This is true, RJ has spoke about this in a few interviews. He also discusses where they are in a better negotiation position now and are starting to see better contracts. Some of the write down could be a result of those better contracts where product in house that came in at the higher prices need to be readjusted for the new prices. In the long run this should help COGS in 2024.

Yes situation is getting better but this still feels not good. Do you know when it should stop? Per RJ interviews R2 should be better, let's hope so.

 

[R1Tom]

Does it break out the products? It likely includes a surplus of EDVs Amazon isn't accepting.

It doesn't and I am sure that is included in the number too. I am just wondering what the scrap rate is on completed vehicles I guess, based on OP topic.

 

[Twitter Fingers]

Yes situation is getting better but this still feels not good. Do you know when it should stop? Per RJ interviews R2 should be better, let's hope so.

The LCNRV write-downs will be gone by the end of 2024 as the vehicles become gross profitable.

This is a matter of overpaying for materials because they launched an automobile company during the supply chain hell of the pandemic, and them selling the vehicles at too low of a price for the pre-march 2022 pre-orders.

 

[Zoidz]

I know manufacturing well, but I'm much less familiar with this LCNRV inventory/supply chain stuff. I'm thinking that this write down includes inventory and commitments related to some of the following? Feel free to tell me I am wrong.

- High Freight costs during the pandemic
- Power Tonneau debacle (scrapped inventory)
- Interior debacles - Ocean Coast wood and vinyl (https://rivian.com/support/article/why-did-rivian-change-the-design-of-ocean-coast)
- Discontinued options i.e. AT Brite wheels, camp kitchen, etc.
- Not meeting purchase commitment timelines to Bosch and other suppliers as production ramped up slower than expected

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