Key points:
- Musk says that Rivian and Lucid are both headed for bankruptcy
- We would all have said the same about Tesla at one point as well
- The question is can they escape that fate?
Elon Musk has said that Rivian (NASDAQ: RIVN) and Lucid (NASDAQ: LCID) are tracking for bankruptcy. Given that Musk is CEO of the major player in the EV space, Tesla (NASDAQ: TSLA) we could think this is just a bit of trash talking about the competition. On the other hand given other news around at present it might be worth at least examining the contention.
The actual point made doesn't tell us which it is: “Unless something changes significantly with Rivian and Lucid, they will both go bankrupt. They are tracking toward bankruptcy.” They need to cut their costs but then that's also something that's pretty normal at this stage of development.
Could be trash talking then, but could also be an important point. For what matters is whether it's possible to grow revenues to meet the cost base. Cost-cutting is important, but so also is revenue growth. Which is where Rivian at least appears to be having some problems:”Rivian Automotive … is reportedly delaying delivery of its long-awaited SUV, the R1S, by one to nine months.” and this is being blamed on tight supply chains and so on. Except, well, perhaps not so much. For there's another story out there about the same point: “Rivian Offering Earlier Delivery Via “Pre-Configured” Options -You'll lose your pre-order that includes everything you wanted, but you could take delivery in weeks instead of months” which is in fact a rather different point.
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Supply chain problems mean not being able to build because of a lack of parts. That's that first explanation – hey, it's happening to everyone, right? The second though – we can build some standard models, but we can't deal with variations? That's an indication of production line difficulties, not parts sourcing. That's a different problem entirely.
Musk could therefore be right as this isn't, at least not obviously, just that general supply chain stuff that's affecting so much of the economy. It's possible to identify this as an internal to Rivian problem.
On the other hand while Musk is indeed correct in that Rivian is tracking to bankruptcy that doesn't mean that they're going to get there. We could have said – indeed many did say – much the same about Tesla at a similar point in its development. Tesla was losing money on every vehicle and losing as a result of overheads too. As is Rivian at present. The solution was to ramp up production which has two effects. Firstly, unit costs usually decline with greater volume so that solves the per unit losses. Secondly, now that per unit margins are positive it's possible to start paying the overheads as well. Tesla did manage it – and Rivian has $16 billion of cash on hand to try and get there too.
The correct answer here is that taken very simply, yes, Musk is right. Rivian is on the path to bankruptcy. They do need to cut their costs. But there are many way to do that and they've a certain amount of time to do it in as well. It's not all over yet.