Rivian Q4 21 – Under the rug

Rivian makes excuses for its inexperience.

• Rivian reported bad Q4 21 results and went on to halve its production targets and blame it on the war in Ukraine which is a classic example of how difficult it really is to manufacture vehicles at scale even when they are in high demand.
• This is one of the key risks that I have highlighted on Rivian (see here) and while there are certainly exogenous factors at play, I think that a lot of these problems are due to the company’s lack of experience.
• Q4 21 revenue / Adj-EPS were $54m / LOSS$2.43 well below forecasts of $64m and LOSS$2.05 but crucially production expectations for 2022 were also cut.
• The company now expects to produce 25,000 vehicles instead of the expected 50,000 meaning that revenues over the next 12 months will be half of that previously expected.
• It also means that losses and cash burn will be higher than expected, but fortunately, Rivian has plenty of money to throw onto the EV bonfire.
• The company is blaming this reduction completely on the supply chain exacerbated by Covid, semiconductor shortages and disruptions caused by the war in Ukraine.
• The first two of these were known factors when Rivian gave its original 50,000 estimate meaning that the only delta should be disruptions caused by the war in Ukraine.
• I find it very hard to believe that an American car company with production in the USA would be unable to meet its production targets entirely due to a war on the other side of the planet and we have not seen similar commentary coming from either Ford or GM.
• Hence, I think that the majority of this downgrade is coming from the fact that Rivian is green around the gills and lacks the execution experience and ability of its much older and more seasoned rivals.
• Hence, it has taken this opportunity to sweep this issue neatly under the rug by putting the blame on the supply chain and war.
• Making vehicles at scale is far more difficult than it looks, and this is the learning curve that Rivian is having to climb now.
• The financial impact will not be pretty.
• Rivian is now forecasting 2022 EBITDA losses of $4.75bn (a proxy for operating cash flow) which combined with $2.6bn in capital expenditure means that the company is going to burn $7.4bn or more of cash this year.
• Fortunately, the company has $17bn in net cash meaning that it has enough to keep burning cash at a breakneck pace for at least another 2 years before it gets into trouble.
• This is thanks to the perfect timing of its IPO which allowed it to raise a lot of money at a ludicrous valuation (see here) while FOMO (fear of missing out) was driving the EV bubble.
• This has now well and truly popped as Rivian is now trading at an equity valuation of $32bn ($36 in after-hours trading) which when one takes out the cash the enterprise value drops to $15.1bn.
• The company listed at $78bn and went on to touch $158.5bn before crashing to the current $32bn.
• If the company will produce 25,000 vehicles which cost about $70,000 each this will provide revenues of around $1.8bn over the next 12 months.
• This would put Rivian on an EV / Sales of 8.3x which is not that far from where it was when it was listed.
• This is because the shares have roughly halved from the IPO price as have the forecasts meaning that the multiple is roughly the same.
• Furthermore, I suspect that the vast majority of the cash pile will be consumed before there is a penny of profit, meaning that the real enterprise value is probably around $32bn giving an EV / sales of around 16x.
• Hence, Rivian remains very expensive and I think it has further to fall as there are no fundamentals to support the share price.
• By contrast, companies that know how to make vehicles or vehicle parts at scale, make money and who are doing a much better job of weathering the current uncertainty are trading at less than 1.0x 2022 EV / Sales.
• I would own Ford, BMW or Valeo over Rivian any day of the week.