Rivian alters production outlook due to supply chain issues

Rivian Automotive (RIVN) has adjusted its annual production expectations downward, citing supply chain problems affecting its R1 and RCV platforms. The electric vehicle (EV) manufacturer now anticipates producing between 47,000 and 49,000 vehicles this year, a major decrease from its earlier estimate of 57,000 units, which was confirmed as recently as August.

The supply chain issues, which began impacting operations in the third quarter, have intensified in recent weeks, necessitating a revision of Rivian’s production goals. Despite these obstacles, the company is holding steady on its annual delivery projection, seeing a slight increase in deliveries. Rivian aims to deliver between 50,500 and 52,000 vehicles for the year.

In the third quarter, Rivian produced 13,157 vehicles and delivered 10,018. To date in 2024, the company has manufactured 36,749 units and delivered 37,396. Although production has suffered, Rivian’s ability to meet its delivery objectives indicates that the company is focused on fulfilling current orders while coping with supply chain challenges.

In contrast, Tesla continues to lead the global EV market, delivering 462,890 vehicles in the third quarter, which marks a 6% increase year-over-year. Rivian’s production difficulties underscore the competitive dynamics in the EV sector, especially as larger enterprises like Tesla ramp up their activities.

In light of the adjusted production guidance, analysts have expressed doubts about Rivian’s capacity to achieve its financial goals, especially its aim to reach positive gross margins by the end of 2024. Truist, a prominent analyst firm, reiterated its hold recommendation on Rivian’s stock, keeping its price target steady. However, the firm highlighted that Rivian’s third-quarter production and delivery results were below consensus expectations by 10% and 15%, respectively. This discrepancy raises concerns regarding the company’s ability to manage supply chain challenges and attain its profitability objectives.

Throughout 2024, Rivian’s stock has experienced considerable pressure, dropping over 50% year-to-date as of early October. On October 4, the stock was trading at approximately .44, a stark decline from its initial public offering (IPO) price in late 2021. This significant drop reflects broader apprehensions regarding the company’s efficiency in scaling production while controlling costs in a fiercely competitive EV environment.

For investors in Australia, Rivian’s challenges highlight the volatility present in the EV market. The global transition to electric vehicles offers considerable growth potential, but firms like Rivian face significant operational hurdles, particularly related to supply chain management and expense oversight. The market is also experiencing increased saturation, with established brands like Tesla and traditional manufacturers enhancing their electric vehicle portfolios, further escalating competitive pressures.

Analysts have noted that Rivian’s lack of commentary regarding its goal of achieving positive gross margins in its latest communication might suggest that this target is becoming increasingly elusive, especially if supply shortages continue. The determination of the company’s ability to lower material costs, as CEO RJ Scaringe discussed earlier this year, will be vital in assessing whether Rivian can improve its profitability. However, with mounting production challenges, the timeline for achieving these cost reductions may be extended.

At present, the market exhibits caution towards Rivian, with many investors opting for a wait-and-see strategy. The forthcoming third-quarter earnings report, scheduled for November 7, will be scrutinized for any insights on the company’s financial prospects and its capability to manage enduring supply chain issues. Until that time, Rivian’s stock is expected to remain under pressure, particularly as broader market conditions and investor attitudes towards high-growth, high-risk sectors like EVs continue to change.