Rivian (RIVN:NASDAQ) shares plummet on production shortfall

Shares of Rivian Automotive (RIVN:NASDAQ) plummeted 10% in after-hours trading Thursday after the electric vehicle start-up cut vehicle production expectations for the year. Rivian Automotive which released its first quarterly earnings report as a public company said it expects a shortfall of a few hundred vehicles from its 2021 production target.

Rivian stated that it intends to produce 1,200 vehicles this year in its S1 filing. However, supply chain issues, as well as challenges ramping up production of the complex batteries that power the vehicles, have hindered the start-up from achieving this goal.

During the earnings call, CEO RJ Scaringe told investors “Ramping up a production system like this, as I said before, is a really complex orchestra. We’re ramping largely as expected, the battery constraint is really an artifact of just bringing up a highly automated line, and, as I said, it doesn’t present any long-term challenges for us.” Rivian said it has produced 652 R1T and R1S vehicles and delivered 386 of those, including the production and sale of the first two R1S SUVs earlier this week.

However, the company reported increased orders for its vehicles, despite the production shortfall. total reservations for its electric R1T pickup and R1S SUV increased to 71,000 as of Dec. 15, up 28% compared with the most recent tally of 55,400 vehicles in November. That’s a higher rate than what the company expected, the company’s officials said.

For the third quarter, Rivian reported an operational loss of $776 million and a net loss of $1.23 billion. The company had previously predicted an operational loss between $745 million and $795 million and a net loss between $1.21 billion and $1.28 billion. Rivian posted a loss per share of $12.21 on revenue of about $1 million. Wall Street analysts expected the company to report a $5.52 earnings per share loss on revenue of $1 million.

Rivian also confirmed plans for a new $5 billion plant in Georgia that’s expected to come online in 2024. The new battery and assembly plant which will be located east of Atlanta is expected to facilitate production of up to 400,000 vehicles per year, Rivian said. Construction on the facility is expected to begin in summer 2022.

The electric startup went public through a blockbuster IPO in November. The public offering was the largest of the year and seventh largest in the U.S. in nearly 30 years. Rivian, which raised $12bn in its public listing is backed whose stakeholders include Amazon(AMZN:NASDAQ) and Ford Motors (F:NYSE), was the first automaker to go to market with an all-electric pickup truck called the R1T.

Albeit, early production cuts did not augur well with investors especially since the company is being touted as a rival to Tesla (TSLA:NASDAQ). Rivian appears to be still much of a growth story, and investors may have to dial back on their lofty expectations of the company.

Apart from the somewhat worrisome production cuts, there may be more trouble on the horizon for the stock. Rivian is not expected to make profit until at least 2025. Even yet, this forecast is still shrouded in uncertainty if we consider the fact that it took Tesla about a decade before it could make profit. Some analysts believe that government support may shorten the company’s unprofitable run.

Events from the past week have shown that the market is fast losing patience with companies that are losing money and high multiple stocks whose valuations are pegged to future earnings. With the Federal Reserve set to hike interest rates at least three times in 2022, stocks such as Rivian may not be on the shopping list for investors in the short term given the company’s run of losses.