Rivian (RIVN) vs. Tesla (TSLA): Can the EV Underdog Match the Giant's Success Story?

Tesla, Inc. (TSLA) accomplished what many believed to be an impossible feat by establishing itself as a prominent electric vehicle (EV) manufacturer entirely from scratch. This achievement positioned Tesla to challenge and compete with major players in the automotive industry.

Rivian Automotive, Inc. (RIVN) shares similar aspirations, aspiring to emulate TSLA’s success. However, investors eagerly anticipating Rivian’s potential to replicate Tesla’s trajectory must closely monitor whether Rivian can address significant challenges in 2024.

Establishing an automobile manufacturing company is particularly challenging due to its capital-intensive nature. This endeavor involves building extensive manufacturing facilities, procuring expensive materials, hiring a substantial workforce, and investing significant time in coordination.

Moreover, navigating regulatory requirements, especially concerning vehicle safety, adds another layer of complexity, as obtaining approvals for road-ready automobiles necessitates stringent compliance measures. Thus, the process of building an automobile manufacturer is not only laborious but also requires substantial financial resources and regulatory adherence.

It took TSLA several years before it could generate consistent profits, a milestone the company reached in 2020. Starting in 2014, Tesla experienced a notable increase in net losses, accompanied by a rise in research and development (R&D) expenses. The electric carmaker, founded in 2003, finally posted its first full year of net income of $721 million in 2020, in contrast to prior losses.

However, during this period, Tesla didn’t face significant competition in the EV market, making it the primary choice for consumers interested in EVs. This relatively unchallenged position allowed Tesla to focus on building its brand and technology without immediate pressure from its dominant peers.

In contrast, RIVN faces a more daunting challenge as it strives to achieve profitability in a market with more players and a competitive landscape different from TSLA’s early years. This means that Rivan’s journey to success is not only challenging and costly but also happening in a market environment that demands strategic adaptation and innovation.

Is Rivian on the Path to Becoming the Next Tesla?

RIVN has made significant strides toward establishing itself as a major player in the EV industry, boasting infrastructure capable of supporting its planned 2024 production target of approximately 57,000 vehicles. For the full year 2023, the company produced 57,232 vehicles and delivered 50,122, surpassing the management’s 2023 production guidance of 54,000 vehicles.

As Rivian’s production and manufacturing progress improved throughout the last year, it showcased its capacity as a legitimate automaker. Moreover, on March 7, 2024, the auto company introduced R2, R3, and R3X product lines built on its new midsize platform.

The launch of new products, including R2 and R3, designed to embody the company’s performance, capability, usability, and affordability, can bring it an expanded market reach, drive higher sales volumes, and offer a competitive edge. Rivian’s design and engineering teams are highly focused on innovating not just the product features but also its approach to manufacturing to achieve substantially reduced costs.

Despite this, Rivian still lags far behind Tesla in a critical investor metric: profitability. Rivian is far from achieving profitability, with its losses significantly exceeding those incurred by Tesla during its initial stages of developing its EV business.

In 2023, while generating substantial revenue of $4.40 billion, Rivian incurred a staggering cost of sales totaling $6.40 billion. This means that Rivian incurred losses for every EV it sold, highlighting an unsustainable business model that requires addressing for long-term viability.

The company reported a net loss of $1.52 billion for the fourth quarter that ended December 31, 2023. The last quarter of 2023 reflected a greater discrepancy between production and deliveries compared to previous quarters and recorded a 10% fall in deliveries.

Also, the company has been burning through cash to ramp up production of its product lines. As of December 31, 2023, RIVN’s cash and cash equivalents stood at $7.86 billion, compared to $11.57 billion as of December 31, 2022. Its cash burn comes at a time when demand for EVs has slowed, with Tesla CEO Elon Musk warning that high interest rates are making cars unaffordable.

“We firmly believe in the full electrification of the automotive industry, but recognize in the short-term, the challenging macro-economic condition,” said RJ Scaringe, Founder and CEO of Rivian.

Elon Musk further made remarks about RIVN’s product design, acknowledging its merit but emphasizing the company’s challenge of scaling up production while maintaining positive cash flow. He pointed out that his rival could face the risk of bankruptcy within six quarters unless significant cost reductions are implemented.

Musk emphasized the urgent need for massive cost-cutting measures to ensure the RIVN’s survival in the competitive automotive market.

Challenges Lie Ahead for Rivian in 2024

RIVN’s outlook for 2024 is influenced by economic and geopolitical uncertainties, particularly the impact of exceptionally high-interest rates. The company plans to maintain its production target at 57,000 vehicles, consistent with 2023 levels. For the full year, Rivian anticipates significant capital expenditures of $1.75 billion and an adjusted EBITDA loss of $2.70 billion.

Amid mounting losses and an increasingly competitive EV market, RIVN announced in February that it would lay off 10% of its salaried workers. Previously, on two different occasions, the EV maker laid off about 6% of its workforce in an effort to reduce its losses.

“Our business is facing a challenging macroeconomic environment — including historically high interest rates and geopolitical uncertainty — and we need to make purposeful changes now to ensure our promising future,” chief executive RJ Scaringe wrote in an email to employees.

Rivian’s cash burn is one of the primary challenges for the company. Its cash burn is unsustainable as it expands R2 and R3 capacity, prompting management to announce a reduction in capital expenditures, specifically in Georgia. Last month, Rivian announced that it would be pausing the construction of its $5 billion manufacturing plant in Georgia to cut down costs.

CEO RJ Scaringe said that production of the R2 will begin at RIVN’s existing plant in Normal, Illinois. While presented as a cost-saving initiative, the decision raises concerns regarding the company's ability to manage its operations effectively.

Bottom Line

RIVN has made significant strides in establishing itself as a major player in the EV industry. The company’s infrastructure supports its ambitious production targets, and the introduction of new product lines like R2 and R3 showcases its commitment to innovation and market expansion. These moves can potentially drive higher sales volumes and enhance its competitive edge.

However, Rivian faces substantial challenges, particularly in achieving profitability. Despite generating decent revenue, the company’s cost of sales has resulted in significant losses, raising questions about the sustainability of its business model. The company’s cash burn is a pressing concern.

While Rivian has shown promise in its technological advancements and product offerings, its path to profitability and long-term viability hinges on its ability to address its cost structure, manage cash flow effectively, and navigate a challenging macroeconomic environment in the EV industry, including high interest rates, supply chain disruptions, and intensified competition.

So, it’s crucial to emphasize that investors should focus on Rivian’s execution toward profitability in 2024. While a shift from losses to profits is significant, consistent progress toward that turning point will determine Rivian’s potential to match Tesla’s success. Investors should also closely monitor Rivian’s efforts to improve operational efficiency and manage costs effectively.

If Rivian can demonstrate steady progress toward profitability, there’s still a chance it could match its rival Tesla’s some of the success achieved. However, given its massive losses, alarming cash burn, and an uncertain outlook, it could be wise to approach RIVN with caution for now.