Posted on Monday September 23rd, 2024
Rivian's much-anticipated second-generation (Gen 2) R1T and R1S production has hit a bit of a bump due to ongoing supplier challenges, according to the company's CFO, Claire McDonough. During a recent visit to Rivian's facilities in Palo Alto, California, Jefferies analyst Philippe Houchois shared insights on the situation, expressing both optimism and concerns.
What's Happening?
Rivian is facing a shortage of components for its new Enduro motor, stemming from issues with a key supplier. While this is causing delays in production, particularly for the Gen 2 models, Rivian continues to push forward. The automaker is still on track with its broader goals, but this latest hiccup is fueling an internal debate at Rivian about whether it’s better to continue outsourcing certain parts or shift toward vertical integration, where they’d manufacture more components in-house.
Impact on Deliveries and Gross Margins
The delayed production is expected to slow deliveries of Rivian’s new vehicles, which is a significant concern as the company has limited inventory of both its Gen 1 and Gen 2 models. Despite this, there is hope that material improvements in variable costs—such as parts and labor—will provide some relief by Q3.
While there’s fear that Rivian may miss its Q4 gross margin breakeven target due to these production issues, there’s still potential for growth. Jefferies continues to back Rivian stock, maintaining a "Buy" rating with a $17.00 price target, which represents a 45% upside.
Looking Ahead
Rivian's CFO has not provided a clear timeline for when the supply issues will be resolved but has indicated that more details will be available when Rivian announces its Q3 results. This communication will be critical in reassuring both customers and investors about the company's future.
The Road Forward
Rivian recently started shipping its Gen 2 R1T and R1S models with the new tri-motor configuration, signaling that progress, albeit slow, is still being made. The company is focusing on improving its cost structure to prepare for more sustainable growth.
In the midst of these challenges, Rivian remains committed to its long-term goals, but as Houchois notes, the real test will be how quickly Rivian can resolve these production hurdles and deliver on its promise of becoming a significant player in the electric vehicle (EV) space.
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