Rivian is laying off 6% of its workforce as it struggles to cut costs in the middle of its production ramp, resulting in massive loss-making sales of its electric vehicles.
While Rivian has successfully ramped up production of its R1T and R1S electric vehicles over the last year, it has been unable to bring costs down and is becoming a real concern.
The company will not publish its earnings until February 28 but has already revealed that it managed to ramp production to 10,000 units in the fourth quarter of 2022.
But the problem is that Rivian is losing a lot of money on each of those vehicles.
In the third quarter, the company was spending up to three times what it charged per vehicle, and that’s not counting all the money it’s spending to build out its service, sales, and charging infrastructure to support its growing fleet.
This is obviously not a financially sustainable business, and while investors aren’t overly concerned that Rivian still had $13 billion in the bank at the end of the third quarter, we need to see some improvement on the cost front.
In an effort to help cut costs, CEO RJ Scaringe announced in an email to employees today that Rivian will lay off 6% of the workforce.
We’ve reached out to Rivian about the email making the rounds and will update the article if the company decides to comment.
The taking of EVM
I’ve been warning for a while that there are serious concerns about Rivian’s costs, but many Rivian fans have downplayed those concerns due to the huge cash position.
Sure, the cash position is good, but we need to see some big improvements in gross margins. Otherwise, Rivian is only losing more money as production ramps up, as has been the case thus far.
As of the last report (Q3), Rivian made just over $500 million in revenue from the sale of a few thousand EVs, which is great, but it cost them almost $1.5 billion to build those EVs.
Meanwhile, it’s also spending nearly a billion dollars a quarter on operating costs, which is to be expected as it expands its operations and infrastructure to support this growing fleet.
I don’t care too much about that, but we need to see a clear path to positive gross margin on vehicles and so far, there isn’t one.
Without significant improvement, the fourth quarter will be a bloodbath with more vehicles produced.
Rivian has a great product, but if you don’t know how to make it profitable, you don’t have a great business.