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Rivian (RIVN) Q2 Results Review: Buy, Sell, or Hold the Stock?
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California-based electric vehicle (EV) startup Rivian Automotive (RIVN - Free Report) reported second-quarter 2024 results yesterday, after market close. Revenues came in lower than expected and the loss per share was also wider than the Zacks Consensus Estimate, causing the stock to plunge 6.7% in after-hours trading. Year to date, the shares have contracted 37%, underperforming the industry, sector and S&P 500. Does this dip present a buying opportunity? Let’s delve into Rivian’s investment potential following its latest earnings release.
YTD Price Performance
Image Source: Zacks Investment Research
Highlights From RIVN’s Q2 Report
Loss Wider Y/Y, Revenues Higher Y/Y: Rivian incurred a quarterly loss of $1.21 per share, wider the Zacks Consensus Estimate of a loss of $1.09 as well as a loss of $1.08 per share posted in the year-ago period. These figures are adjusted for non-recurring items. Revenues of $1.16 billion fell short of the Zacks Consensus Estimate of $1.17 billion but rose from $1.12 billion recorded in the corresponding period of 2023. Over the last four quarters, the company surpassed consensus EPS and revenues estimates twice for as many misses.
Production & Deliveries: In the second quarter of 2024, Rivian produced and delivered 9,612 and 13,790 vehicles, respectively. Deliveries exceeded production in the quarter under discussion amid factory shutdown in April for retooling, aimed at reducing production costs and updating the R1T pickup and R1S crossover for the 2025 model year. While deliveries increased sequentially and yearly, production suffered more than a 31% decline both year on year and quarter on quarter.
Gross Loss Per Unit Widens Y/Y: Rivian lost $32,705 per vehicle delivered during the second quarter of 2024, wider than $32,595 loss per vehicle incurred in the corresponding period of last year. Lower average selling price and less efficient absorption of labor, overhead, and depreciation due to lower production volume caused by plant downtime for upgrades weighed on the gross profit.
Launch of Gen 2 R1 Vehicles: During the second quarter, Rivian started delivering second-generation R1 vehicles with hundreds of upgrades, including new zonal architecture, compute and autonomy platform, in-house drive units and re-engineered suspension. Rivian also introduced Tri-Motor and Quad-Motor configurations, joining the Dual-Motor, with all motors now designed and manufactured in-house.
Full-Year View Reaffirmed: Rivian maintained its 2024 production guidance of 57,000 units. Annual deliveries are expected to grow by a low single-digit percentage year over year. The company expects a loss before interest, taxes, depreciation and amortization of $2.7 billion. Capex also remains unchanged at $1.2 billion. RIVN remains on track to achieve gross profit in the fourth quarter of 2024.
Promising Long-Term Prospects
A key factor driving our long-term optimism for Rivian is the massive deal with Germany-based auto giant Volkswagen (VWAGY - Free Report) .Volkswagen will inject $1 billion into a new joint venture with Rivian, focusing on shared EV technology and software, with plans for an additional $4 billion investment after the venture is established. The deal — expected to bolster Rivian's operations and expedite its production plans — isset to close in the fourth quarter of 2024. Notably, Volkswagen is the second legacy automaker to invest in Rivian. Previously, Ford (F - Free Report) held a roughly 12% stake alongside Amazon (AMZN - Free Report) but exited in 2023 after canceling plans to co-develop EVs.
Another major catalyst is Rivian’s cost-cut efforts. The Normal facility retooling introduced technologies and cost-focused changes, enhanced cycle time, utilization and cost efficiency, reduced complexity by cutting 1,500 joints, and improved the R1 production line rate by 30%. The Gen 2 R1 model is expected to lower material costs by approximately 20% throughout the year, incorporating design changes, cost improvements, and raw material savings that boost profitability and support a positive fourth-quarter gross profit target.
Beyond 2024, Rivian plans to improve profits by reducing material costs, leveraging fixed costs from R2 volumes, and increasing revenue per unit through product mix, pricing, software and services. The R2 model, a mid-sized electric SUV priced around $45,000, is scheduled for launch in the first half of 2026. Rivian expects the R2 to cut costs by around 45% compared to the second-generation R1.
The partnership with VWAGY will accelerate the production of the R2 model, potentially lowering manufacturing costs and speeding up timelines for Rivian. RIVN also plans an even more affordable R3 model, though no timeline or price target has been provided yet. It aims to achieve positive adjusted EBITDA by 2027, with long-term targets of around 25% GAAP gross margin and a 10% free cash flow margin.
Encouragingly, the Zacks Consensus Estimate for 2024 and 2025 sales implies a year-over-year uptick of 9.1% and 33%, respectively. The consensus mark for the bottom line implies a year-over-year improvement of 21% and 41%, respectively.
Near-Term Concerns Prevail
Rivian has been burning cash since starting vehicle production in late 2021. It exited the second quarter with $5.8 billion in cash and cash equivalents compared with $7.9 billion at the end of the 2023. Despite the Volkswagen investment, Rivian will continue to face significant cash burn amid expansion and ramp-up efforts. It is expected to continue posting losses for the next couple of years as it tries to scale production in a challenging EV market. Although loss per share is expected to narrow on a yearly basis in 2024 and 2025, estimates have actually worsened for both years, over the past seven days.
Image Source: Zacks Investment Research
Additionally, vehicle deliveries are expected to fall sequentially in the third quarter as Rivian rebuilds its inventory following plant shutdown in April.
Lastly, Rivian’s valuation is stretched, trading at a forward sales multiple of 2.55, higher than the industry. The stock has a Value Score of F.
Image Source: Zacks Investment Research
Last Word
While the VWAGY deal, cost-cutting measures and new product launches bode well for Rivian, investors should not rush into buying the stock now given the cash burn and premium valuation. While current shareholders should hold their positions, new investors should wait for a more favorable entry point.
Image: Bigstock
Rivian (RIVN) Q2 Results Review: Buy, Sell, or Hold the Stock?
California-based electric vehicle (EV) startup Rivian Automotive (RIVN - Free Report) reported second-quarter 2024 results yesterday, after market close. Revenues came in lower than expected and the loss per share was also wider than the Zacks Consensus Estimate, causing the stock to plunge 6.7% in after-hours trading. Year to date, the shares have contracted 37%, underperforming the industry, sector and S&P 500. Does this dip present a buying opportunity? Let’s delve into Rivian’s investment potential following its latest earnings release.
YTD Price Performance
Highlights From RIVN’s Q2 Report
Loss Wider Y/Y, Revenues Higher Y/Y: Rivian incurred a quarterly loss of $1.21 per share, wider the Zacks Consensus Estimate of a loss of $1.09 as well as a loss of $1.08 per share posted in the year-ago period. These figures are adjusted for non-recurring items. Revenues of $1.16 billion fell short of the Zacks Consensus Estimate of $1.17 billion but rose from $1.12 billion recorded in the corresponding period of 2023. Over the last four quarters, the company surpassed consensus EPS and revenues estimates twice for as many misses.
Production & Deliveries: In the second quarter of 2024, Rivian produced and delivered 9,612 and 13,790 vehicles, respectively. Deliveries exceeded production in the quarter under discussion amid factory shutdown in April for retooling, aimed at reducing production costs and updating the R1T pickup and R1S crossover for the 2025 model year. While deliveries increased sequentially and yearly, production suffered more than a 31% decline both year on year and quarter on quarter.
Gross Loss Per Unit Widens Y/Y: Rivian lost $32,705 per vehicle delivered during the second quarter of 2024, wider than $32,595 loss per vehicle incurred in the corresponding period of last year. Lower average selling price and less efficient absorption of labor, overhead, and depreciation due to lower production volume caused by plant downtime for upgrades weighed on the gross profit.
Launch of Gen 2 R1 Vehicles: During the second quarter, Rivian started delivering second-generation R1 vehicles with hundreds of upgrades, including new zonal architecture, compute and autonomy platform, in-house drive units and re-engineered suspension. Rivian also introduced Tri-Motor and Quad-Motor configurations, joining the Dual-Motor, with all motors now designed and manufactured in-house.
Full-Year View Reaffirmed: Rivian maintained its 2024 production guidance of 57,000 units. Annual deliveries are expected to grow by a low single-digit percentage year over year. The company expects a loss before interest, taxes, depreciation and amortization of $2.7 billion. Capex also remains unchanged at $1.2 billion. RIVN remains on track to achieve gross profit in the fourth quarter of 2024.
Promising Long-Term Prospects
A key factor driving our long-term optimism for Rivian is the massive deal with Germany-based auto giant Volkswagen (VWAGY - Free Report) .Volkswagen will inject $1 billion into a new joint venture with Rivian, focusing on shared EV technology and software, with plans for an additional $4 billion investment after the venture is established. The deal — expected to bolster Rivian's operations and expedite its production plans — isset to close in the fourth quarter of 2024. Notably, Volkswagen is the second legacy automaker to invest in Rivian. Previously, Ford (F - Free Report) held a roughly 12% stake alongside Amazon (AMZN - Free Report) but exited in 2023 after canceling plans to co-develop EVs.
Another major catalyst is Rivian’s cost-cut efforts. The Normal facility retooling introduced technologies and cost-focused changes, enhanced cycle time, utilization and cost efficiency, reduced complexity by cutting 1,500 joints, and improved the R1 production line rate by 30%. The Gen 2 R1 model is expected to lower material costs by approximately 20% throughout the year, incorporating design changes, cost improvements, and raw material savings that boost profitability and support a positive fourth-quarter gross profit target.
Beyond 2024, Rivian plans to improve profits by reducing material costs, leveraging fixed costs from R2 volumes, and increasing revenue per unit through product mix, pricing, software and services. The R2 model, a mid-sized electric SUV priced around $45,000, is scheduled for launch in the first half of 2026. Rivian expects the R2 to cut costs by around 45% compared to the second-generation R1.
The partnership with VWAGY will accelerate the production of the R2 model, potentially lowering manufacturing costs and speeding up timelines for Rivian. RIVN also plans an even more affordable R3 model, though no timeline or price target has been provided yet. It aims to achieve positive adjusted EBITDA by 2027, with long-term targets of around 25% GAAP gross margin and a 10% free cash flow margin.
Encouragingly, the Zacks Consensus Estimate for 2024 and 2025 sales implies a year-over-year uptick of 9.1% and 33%, respectively. The consensus mark for the bottom line implies a year-over-year improvement of 21% and 41%, respectively.
Near-Term Concerns Prevail
Rivian has been burning cash since starting vehicle production in late 2021. It exited the second quarter with $5.8 billion in cash and cash equivalents compared with $7.9 billion at the end of the 2023. Despite the Volkswagen investment, Rivian will continue to face significant cash burn amid expansion and ramp-up efforts. It is expected to continue posting losses for the next couple of years as it tries to scale production in a challenging EV market. Although loss per share is expected to narrow on a yearly basis in 2024 and 2025, estimates have actually worsened for both years, over the past seven days.
Image Source: Zacks Investment Research
Additionally, vehicle deliveries are expected to fall sequentially in the third quarter as Rivian rebuilds its inventory following plant shutdown in April.
Lastly, Rivian’s valuation is stretched, trading at a forward sales multiple of 2.55, higher than the industry. The stock has a Value Score of F.
Image Source: Zacks Investment Research
Last Word
While the VWAGY deal, cost-cutting measures and new product launches bode well for Rivian, investors should not rush into buying the stock now given the cash burn and premium valuation. While current shareholders should hold their positions, new investors should wait for a more favorable entry point.
Rivian currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.