Following market close on Thursday, Electric Vehicle manufacturer Rivian released their first quarterly report as a public company. For the third quarter, Rivian reported its first quarter of revenues, generating $1 Million from vehicle deliveries. However, the company also reported a mammoth net loss of $1.2 Billion, a 340% increase year over year. In addition, Rivian has cut their 2021 production target of 1,200 vehicles by a “few hundred” as supply chain issues continue to cause headaches for the North American EV start up. So let’s dive into the key reasons why Rivian Stock is dropping today.
So why is Rivian Stock dropping today?
One of the reasons why Rivian Stock is dropping is this is the first proper look investors have had into the companies books. The quarterly reporting requirements for US listed companies provides investors greater transparency into the financial health of the business.
In the third quarter, Rivian’s Research and Development costs doubled to $441 Million while it’s Selling, general, and administrative expenses ballooned to $253 million. The company outlined increased R&D efforts into the R1 models alongside scaling of sales operations and customer locations were the main culprits in driving higher expenses.
With increasing R&D costs, alongside the companies convertible notes issued this quarter, the net loss exceeded $1 Billion. Increasing costs raise concerns for Electric Vehicle companies as it places additional pressure on cash flows and increases cash burn, as revenues remain a fraction of costs. In fact, Free Cash Flow for the quarter was -($1,154) million, compared to -($435) million last year.
What were the positives from Rivian’s third quarter report?
The good news is at this stage Rivian has raised a significant amount of capital in the quarter, with $19.9 billion in Cash or equivalents on the balance sheet. According to Rivian, the funding raised in 2021 will offer Rivian “the opportunity to execute on near-term objectives”, including commercialising the R1T and R1S in North America.
Furthermore, Rivian expect to begin construction on the Georgia facility in 2022. The facility has a 400,000 targeted annual production capacity with eventual co-located cell production. The Georgia facility project alongside its current operating Illinois factory, will aim to expand Rivian’s production capacity to 600,000+ vehicles annually according to Rivian.
Why is Rivian Stock Dropping? – The Bottom Line
Overall, Rivian Stock is dropping post-market as investors try marry the financial health of the business ewith its current valuation. Rivian Stock currently has a market capitalisation of $92 Billion, and is not yet computing the revenues to support its valuation.
In saying this, multiple analysts see the stock as a “compelling investment opportunity” with the companies ties to Amazon and its high quality EV model performance. The debate on valuation and future potential between the bulls and the bears will continue to be the main talking point on Rivian Stock as we move into 2022.
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