Rivian Loses $33K on Every Truck It Sells: Report(jalopnik.com)
jalopnik.com
Rivian Loses $33K on Every Truck It Sells: Report
https://jalopnik.com/rivian-loses-33k-on-every-truck-it-sells-report-1850899055
20 comments
If we are starting to see this junk in the news you think there might be a growing short position on the company?
There definitely is: https://www.marketbeat.com/stocks/NASDAQ/RIVN/short-interest...
There are two scenarios:
1. Each car costs $33k more to make than it sells for. Marginal cost > marginal revenue. Selling more cars will hurt the business. Quite dramatic, basically nothing can be done.
2. Each car costs less than it sells for. Marginal cost < marginal revenue. But the business overall is making a loss, equivalent to $33k times cars sold due to fixed costs. Selling more cars helps the business. Less dramatic, business as usual for a company that can only be profitable at scale, nothing new.
Headline says #1, but I really doubt it’s #1.
1. Each car costs $33k more to make than it sells for. Marginal cost > marginal revenue. Selling more cars will hurt the business. Quite dramatic, basically nothing can be done.
2. Each car costs less than it sells for. Marginal cost < marginal revenue. But the business overall is making a loss, equivalent to $33k times cars sold due to fixed costs. Selling more cars helps the business. Less dramatic, business as usual for a company that can only be profitable at scale, nothing new.
Headline says #1, but I really doubt it’s #1.
That is similar to all the blog reports last spring claiming Ford was losing $3B a year on their EVs based on the bottom line numbers in their quarterly reports. Those same blogs ignored the numbers earlier in the report about Ford spending about $3B on battery and vehicle assembly factories and equipment.
It's expensive to build out mass production capacity. This is a stupid calculation to do before they're realizing the benefits of mass production with lots of vehicles to amortize the costs.
Living in the area of a Rivian office, I see their trucks around frequently. They're nice looking vehicles but appear to be mostly for getting household supplies at the local big box and far too slick for heavy duty work and off road use. I've heard that employees who buy one get a $1000 subsidy each month, which sounds like a nice benefit but unless they're also getting a heavy discount on the purchase price, even with the monthly subsidy, it's a bit iffy.
I feel like that’s more the nature of luxury-priced products than reflection of their actual capabilities.
Out of the box a Range Rover is a better off roader than a Jeep, more locking differentials, and more ground clearance, but simply the average buyer isn’t going to use it that way.
Putting both those vehicles to shame is the Mercedes G-wagon, but only once in my life have I ever seen one of those on the trails.
Realistically the best capabilities will come from the aftermarket, and that depends on how many people can afford to beat up that vehicle.
Out of the box a Range Rover is a better off roader than a Jeep, more locking differentials, and more ground clearance, but simply the average buyer isn’t going to use it that way.
Putting both those vehicles to shame is the Mercedes G-wagon, but only once in my life have I ever seen one of those on the trails.
Realistically the best capabilities will come from the aftermarket, and that depends on how many people can afford to beat up that vehicle.
Wow. And not the cheapest vehicles to start off either. That's a scary proposition to consider if you buy one of those right now.
Why are they doing this? To make money on service fees and the next vehicle?
Cost Accounting can be a bit of a dark art. It's pretty tricky to apportion part of the cost of a factory to every different widget made in it.
But in this case, it's likely just BS. They're probably just taking the yearly loss and dividing it by the number produced. Which is different from each marginal car produced costing them 30K.
edit to add: the article claims the main reason for them losing so much money is lack of throughput, which demonstrates that the claim is bullshit. If they made even more cars and "lost 30K" on each one they'd be worse off.
But in this case, it's likely just BS. They're probably just taking the yearly loss and dividing it by the number produced. Which is different from each marginal car produced costing them 30K.
edit to add: the article claims the main reason for them losing so much money is lack of throughput, which demonstrates that the claim is bullshit. If they made even more cars and "lost 30K" on each one they'd be worse off.
> edit to add: the article claims the main reason for them losing so much money is lack of throughput, which demonstrates that the claim is bullshit. If they made even more cars and "lost 30K" on each one they'd be worse off.
Hah! I knew I wasn't the only one who noticed that. It's like the old joke:
> Q: How do you expect to stay in business if you lose money on every sale?
> A: Easy. We'll make it up on volume!
More seriously, a production line has huge fixed costs associated with it, so you really need to get the most throughput out of it that you can, in order to maximize profits.
Hah! I knew I wasn't the only one who noticed that. It's like the old joke:
> Q: How do you expect to stay in business if you lose money on every sale?
> A: Easy. We'll make it up on volume!
More seriously, a production line has huge fixed costs associated with it, so you really need to get the most throughput out of it that you can, in order to maximize profits.
> the article claims the main reason for them losing so much money is lack of throughput, which demonstrates that the claim is bullshit. If they made even more cars and "lost 30K" on each one they'd be worse off.
Generally speaking, the cost per unit goes down as throughput goes up, especially in the car manufacturing space. Production rate is insanely important to car manufacturers making any money at all.
Virtually every single new mass produced vehicle ever made started off losing money on a per-unit basis until manufacturing scales.
Generally speaking, the cost per unit goes down as throughput goes up, especially in the car manufacturing space. Production rate is insanely important to car manufacturers making any money at all.
Virtually every single new mass produced vehicle ever made started off losing money on a per-unit basis until manufacturing scales.
Generally speaking, you can't generalize vehicle production with new companies, or even old ones. Vehicle production is extremely complicated and expensive. Minor quality errors lead to increasing delays and costs.
Famously, GM used to spend ridiculous amounts of time and money to fix cars coming out of some of its plants. It wasn't uncommon for some cars to be incapable of being driven out of the plant. The more cars they made, the more errors, and the more time and money spent on fixing them. This was a major factor in the development of the NUMMI plant.
What brings cost down is increased quality, reduction of waste, and increase of speed. If you don't have all three you aren't gonna save money.
Famously, GM used to spend ridiculous amounts of time and money to fix cars coming out of some of its plants. It wasn't uncommon for some cars to be incapable of being driven out of the plant. The more cars they made, the more errors, and the more time and money spent on fixing them. This was a major factor in the development of the NUMMI plant.
What brings cost down is increased quality, reduction of waste, and increase of speed. If you don't have all three you aren't gonna save money.
Exactly right.
cost per unit = cost per unit + total non-unit costs/total units.
So they're loosing money overall, but the unit economics may still work.
cost per unit = cost per unit + total non-unit costs/total units.
So they're loosing money overall, but the unit economics may still work.
Tesla famously was at one time spending almost $200K per car because it sucked at building so badly. It's completely plausible that a SV-inspired company with no experience manufacturing cars would lose a whole bundle on pretending it could do it cost effectively, while bilking investors for more cash to stay afloat
Automotive pricing is complicated. The cost probably was predicted to be profitable at some point, but costs change over time and changing cost targets is difficult. Here's some random speculation:
* The amount a vehicle costs to produce decreases dramatically depending on how many you're producing because of economies of scale, vendors charging less, and higher negotiating power in volume. They're currently not producing at the scale they expected, so their production costs are inherently higher.
* It's extremely difficult to know where you can cut costs in ways that won't affect customers significantly at design time. If you're a new startup in a competitive market, a bad reputation is a death sentence. It might be worth starting out conservatively and cutting those costs when you have better data.
* They went through production/design in one of the worst supplier markets in decades. Production costs might have increased due to last minute part changes, now they need to claw that back down again.
Etc.
* The amount a vehicle costs to produce decreases dramatically depending on how many you're producing because of economies of scale, vendors charging less, and higher negotiating power in volume. They're currently not producing at the scale they expected, so their production costs are inherently higher.
* It's extremely difficult to know where you can cut costs in ways that won't affect customers significantly at design time. If you're a new startup in a competitive market, a bad reputation is a death sentence. It might be worth starting out conservatively and cutting those costs when you have better data.
* They went through production/design in one of the worst supplier markets in decades. Production costs might have increased due to last minute part changes, now they need to claw that back down again.
Etc.
I assume the plan is to become more efficient over time to the point of being profitable. This is a very common pattern even in software. Basically they are dumping product using VC money.
I haven’t seen Rivian financial reports but I have on some other EV manufacturers like Ford. A lot of those have negative bottom lines because they are making large capitol expenditures on equipment and factories for batteries and production lines. You can’t just take that number and divide by the number of vehicles sold this year and say “look at the huge loss!”. That’s not how capitol investment works.
Not selling any vehicles would cost them even more. They spent a lot of money developing cars and if you only sell a few, you're going to make a loss.
https://jalopnik.com/tesla-loses-a-lot-of-money-selling-cars...
Also, as a general rule, don't read financial information from bloggers.