Shares of Rivian Automotive(NASDAQ: RIVN) sank after the maker of electric vehicles (EVs) lowered its full-year vehicle production numbers, saying it was experiencing a production disruption.
The stock has been on a roller-coaster ride this year, dropping to start this year only to rally following an investment from Volkswagen. The stock currently finds itself down more than 50% on the year.
Let's take a look at Rivian's most recent woes and whether there is another rebound in store for the company.
Component shortages
For the third quarter, Rivian delivered 10,018 vehicles and produced 13,157. Its Q3 production numbers came in just ahead of the 13,000 that analysts were expecting. As expected, deliveries in the quarter were impacted by reduced production in the second quarter as the company shut down its manufacturing plant in order to implement a retooling upgrade.
However, the company surprisingly reduced its full-year production guidance, citing a shortage of a shared component on the R1 and RCV platforms. It now expects to produce between 47,000 and 49,000 vehicles, down from a prior outlook of 57,000. Last year, the company produced 57,232 vehicles and delivered 50,122.
It said the supply shortage started in Q3 but became more severe in recent weeks. The R1 is Rivian's luxury SUV, while RCVs are its commercial van models used by companies like Amazon, which is its largest shareholder.
The company alluded to supply issues at a conference last month, with CEO RJ Scaringe saying it had some supplier issues around its in-house motors. Despite the production issues, the company maintained its outlook for low-single-digit annual delivery growth of between 50,500 to 52,000 vehicles. This likely means the production issues will impact its results at the start of next year.
Rivian's production issues come at a time when overall EV industry sales have slowed, while the company is also working toward a positive gross margin. While EV growth has slowed, it is still growing, just at a slower pace than in years past. For Q3, U.S. EV sales rose 8% year over year, while overall vehicle sales were down 2%.
Rivian's R1 SUV has continued to be a solid seller. However, there have been two main issues. One is that the company has been selling the SUVs at a cost that it is less than to make them. Second, the market is only so big for vehicles priced at well over $70,000.
To help address the issue of negative gross margin, the company has recently overhauled the internal design of its vehicles. This included introducing a new zonal architecture that would greatly reduce the number of electronic control units (ECUs) and wiring in its vehicles and allow for smoother over-the-air software updates. It also retooled its factory to help increase its line rate.
Rivian had a goal of being slightly gross-margin-positive in the fourth quarter. It did not say whether the reduced production due to a component shortage would change that outlook for Q4 or impact its first-half 2025 gross margin. However, I would suspect that less production than expected would likely impact its gross margin in the near term.
Meanwhile, Rivian is also in the process of introducing a less expensive SUV, the R2. Expected to be priced starting around $45,000, the R2's price tag will give it much more mass appeal than the R1. The new vehicle, however, isn't expected to begin production until the first half of 2026.
Image source: Getty Images.
Time to buy the dip?
At the end of the day, Rivian's current production issues stemming from a supply shortage are unlikely to impact it over the long term. However, it does speak to the difficulties of dealing with a supply chain as a smaller vehicle maker. It also may impact its gross margin in the near term, which is an important part of the company's longer-term story.
Following its investment from Volkswagen, Rivian has a lot of cash to continue down its path of scaling up and turning gross-profit-positive while also introducing a less expensive SUV model. Meanwhile, the stock is now well below where it was before the announcement.
All in all, Rivian remains a speculative investment given its early-stage nature, along with negative gross margin and free cash flow. While partnerships with Volkswagen and Amazon bode well for the long run, the company still has a lot to prove.
At this time, I'd probably wait until after earnings before considering investing in the stock, as I think the production disruption will have an impact on gross margin in the quarters ahead, which I think would disappoint investors.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Volkswagen. The Motley Fool recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
