Rivian: Performance and guidance are like ice and fire, can it survive the electric vehicle winter of the Trump era?

Rivian released its Q4 2024 financial report after the U.S. stock market closed on February 20, 2025. Here are the key points:

1) Q4 revenue significantly beat market expectations, mainly due to automotive business and software/service revenue exceeding expectations: Q4 total revenue was $1.7 billion, significantly higher than the market consensus expectation of $1.36 billion (a difference of $380 million). As the management had previously communicated regarding regulatory credits, Q4 would record $275 million in revenue (actual Q4 was $299 million), so the key to the outperformance still lies in automotive business revenue (which exceeded market expectations by $240 million) and software service revenue (which exceeded market expectations by $100 million).

2) Q4 gross margin finally turned positive as expected: As the company repeatedly emphasized, the gross margin for this quarter successfully turned positive, even reaching 9.8%, which is 2.4% higher than the market consensus expectation, and improved by 54.7 percentage points compared to the previous quarter.

The significant leap was mainly due to the contribution from regulatory credits. Excluding the impact of regulatory credits, the gross margin for the automotive business this quarter was -15.5%. Although it still hasn't turned positive, it improved by 35 percentage points compared to the previous quarter, which is still a commendable improvement.

3) However, from the perspective of unit economics, the material cost reduction for the second-generation R1 was not as expected and guided by the company: From Rivian's actual automotive business gross margin (also excluding regulatory credits, explained in detail below), the real automotive business gross margin for Q4 was -21.1%, which improved by 23 percentage points compared to the previous quarter, mainly due to the rebound in unit revenue.

However, in terms of unit costs, variable costs (essentially material costs) only decreased by less than $3,000 compared to the previous quarter. Reflecting on Rivian's previous emphasis on the R1 upgrade, which involved changing 50% of suppliers to significantly reduce BOM costs, the actual BOM cost reduction for the second-generation R1 was not as expected and guided by management.

4) The delivery guidance for 2025 is weak, implying soft demand: The delivery guidance for 2025 is only 46,000 to 51,000 units, lower than the market expectation of 55,000 units, and even lower than the actual delivery of 51,600 units in 2024, implying weak demand for the R1, with few orders on hand.

From the adjusted EBITDA guidance and capital expenditure guidance, both are expected to exceed market expectations, implying that cash flow consumption will be about $500 million higher than market expectations.

Dolphin Research's overall view:

Overall, Rivian's Q4 performance initially looks explosive, with revenue and gross margin significantly beating market expectations. The gross margin finally turned positive as management repeatedly emphasized, and the adjusted EBITDA saw a significant increase, leading to positive free cash flow for the first time this quarterHowever, looking at the actual split, without considering the impact of regulatory points and service income, and focusing solely on the actual performance of the automotive business, the main area that exceeded expectations was the average selling price of vehicles, which increased by nearly $9,000 quarter-on-quarter. This was mainly due to the fact that in the fourth quarter, the company was primarily selling the second-generation R1 (without the $3,000-$6,000 discounts for first-generation R1 inventory vehicles) and the delivery of three-motor and large battery versions began (which improved the sales structure).

Investors are also very concerned about the reduction in per-vehicle costs. Dolphin Research found last quarter that Rivian's per-vehicle cost reduction was insufficient (management previously guided that the second-generation R1 would lead to a significant reduction in variable costs, with BOM costs down 20% in Q4 compared to Q1). However, considering that the first-generation R1 deliveries might still be relatively high, this quarter has basically switched to delivering the second-generation R1, and the proportion of EDV has increased this quarter (EDV has a higher gross margin and lower costs). However, the variable cost per vehicle only decreased by $3,000 quarter-on-quarter, and compared to Q1, it only decreased by about $5,000, which is significantly lower than the company's original guidance.

Regarding the company's guidance for 2025, whether for the full-year delivery volume or the Q1 2025 guidance (only delivering 8,000 vehicles, a year-on-year decline of 40%), the implied demand for the R1 is very weak, with a decrease in the order backlog. Investors were previously concerned about the potential cancellation of IRA subsidies affecting Rivian R1 order volumes, and this guidance from management has exacerbated market concerns.

Similarly, in terms of demand for EDV (commercial vehicles), management expects the volume delivered to Amazon in 2025 to be lower than in 2024, and they did not disclose the potential order volume after opening up to third parties. The overall automotive business fundamentals for 2025 remain concerning, especially with the high likelihood of IRA subsidies being suspended or canceled. Rivian currently has a low order backlog, and with no new vehicle launches in 2025, it will be a blank year.

As for the true gross margin of the automotive business, management still expects it to be negative in 2025, especially as Dolphin Research believes that the cost reduction effect of the second-generation R1 is not as expected, and demand in 2025 is under pressure. The potential cancellation of IRA subsidies may lead Rivian to continue lowering prices, and the ASP per vehicle may decline. Therefore, the quarter-on-quarter increase in automotive business gross margin seems to be just a "spark in an instant," and the sustainability of continued quarter-on-quarter increases is not high.

Currently, Rivian's cash flow, at the existing consumption rate, can support production for less than two years. The $6.6 billion loan from the Department of Energy is still very important for Rivian, but the uncertainty surrounding the acquisition of this loan has significantly increased since Trump took office. If canceled, it would be a considerable negative for Rivian.

Overall, although there are collaborations with Volkswagen in 2025 and the revenue and gross margin increments from the established joint venture company for energy and service businesses, contributing 5%-10% to the overall gross margin, preventing it from looking too bad, the automotive business fundamentals and financing still face significant negative factors, especially with increased uncertainty since Trump took office, and there are still many negative factorsSpecifically:

1. Q4 revenue significantly beats market expectations, driven by automotive business and software/service revenue exceeding expectations

In terms of overall revenue, Q4 total revenue reached $1.7 billion, significantly higher than the market consensus expectation of $1.36 billion (a difference of $380 million).

Since the regulatory credits were communicated by management to the market last quarter, which recorded nearly $275 million in revenue (actual Q4 was $299 million, not much difference), the key to the outperformance still lies in automotive business revenue (which exceeded market expectations by $240 million) and software service revenue (which exceeded market expectations by $100 million).

Automotive business revenue this quarter (excluding regulatory credit revenue) was $1.22 billion, while market expectations were only around $1 billion, with the key to the outperformance being the increase in revenue per vehicle.

Software and service revenue this quarter was $210 million, achieving a doubling growth quarter-on-quarter, mainly due to the launch of Volkswagen's payment based on RIVIAN's electronic architecture and software development service fees starting in Q4 (Dolphin Research estimates around $100 million).

2. Q4 gross margin finally turns positive as expected

In addition to focusing on revenue performance, the key aspect of the Q4 results is that the gross margin on the financial statements, as the company repeatedly emphasized, successfully turned positive, even reaching 9.8%, exceeding the market consensus expectation by 2.4%, and improving by 54.7 percentage points compared to the previous quarter.

The reasons for the significant leap are:

① Contribution from regulatory credits: This quarter, the gross margin for the automotive business on the financial statements successfully turned positive (7.2%), rebounding by 56 percentage points quarter-on-quarter, but in reality, it is due to a large amount of regulatory credit revenue being recognized in Q4 2024 (with almost no cost), which contributed nearly 21 percentage points to the quarter-on-quarter improvement in automotive gross margin.

② Excluding this regulatory credit, the automotive business gross margin was -15.5%. Although it still hasn't turned positive, it improved by 35 percentage points compared to the previous quarter, which is still a pretty good improvement.

③ The software and service revenue from Volkswagen's payment based on RIVIAN's electronic architecture and software development service fees in Q4 is essentially a high-margin business, with the gross margin for software and service business improving by 41.3 percentage points quarter-on-quarter.

3. However, in the core automotive business gross margin, although Q4 performance was good, the BOM cost reduction was not as guided

Due to the relatively large adjustment in Rivian's financial statements, the market is most concerned about Rivian's core automotive business performance. Dolphin Research has separated this performance to analyze the automotive business independently.

However, Rivian's automotive business gross margin on the financial statements is also affected by inventory and contract impairment reversals, as well as one-time cost factors. Since the amounts that can be reversed for inventory and contract impairments are very small by 2025, and one-time costs (mainly related to the second-generation R1 updates) are unlikely to recur in 2025, to observe sustainability, Dolphin Research has excluded these two impacts to observe the real automotive business gross marginFrom the perspective of the real gross margin of the automotive business this quarter (also excluding regulatory credits), it is considered a decent improvement, with a real gross margin of -21.1% for the automotive business in the fourth quarter, an increase of 23 percentage points compared to the previous quarter.

The main reasons for the quarter-on-quarter improvement are:

① The most significant reason: The revenue per vehicle in the fourth quarter was $86,000, an increase of $9,400 compared to the previous quarter, significantly exceeding the market's expectation of flat revenue per vehicle.

The main reasons for the increase in revenue per vehicle are:

a. This quarter, most deliveries were of the latest R1 model, which did not offer discounts, while in the second and third quarters, a large number of inventory vehicles (previous versions of R1 that offered significant discounts) were delivered;

b. In terms of sales structure, the introduction of the three-motor R1 (the more expensive version) boosted the average selling price per vehicle, although this was partially offset by the increased proportion of EDV (which has a lower unit price for commercial vans).

② Secondly: The per-vehicle amortized cost decreased by $8,000 compared to the previous quarter, partly due to economies of scale, but mainly because the company accelerated depreciation on the second-generation R1 upgrades in Q2-Q3, and the operational efficiency of the factory improved.

③ However, the most critical point is the reduction in variable costs, which is also the aspect the market is most concerned about:

Remember that RIVIAN previously emphasized that this R1 upgrade involved changing 50% of suppliers, leading to a significant reduction in BOM costs (Rivian previously estimated a 20% decrease in BOM costs from Q1 2024 to Q4 2024).

However, in reality, the reduction in variable costs this quarter was not substantial, decreasing by less than $3,000 compared to the previous quarter, and only $5,000 compared to Q1 2024. At the same time, there was an increase in the proportion of EDV, which has lower costs and higher gross margins, and almost all deliveries were of the second-generation R1 aimed at cost reduction, leading investors to doubt that the reduction in BOM material costs for the updated second-generation R1 was as significant as previously guided by the company.

Four. The company's 2025 automotive business guidance is poor, below market expectations

From the delivery guidance for 2025, the delivery guidance is only 46,000 to 51,000 vehicles, which is below the market expectation of 55,000 vehicles and even lower than the actual delivery of 51,600 vehicles in 2024. Although there will be nearly a month of factory upgrades and renovations in the second half of 2025 (to prepare for the launch of R2), the actual delivery guidance still implies weak market demand for R1, and the company's performance PPT indicates that the EDV sales delivered to Amazon in 2025 will be lower than in 2024, implying that Amazon's demand for EDV is also not highAlthough EDV has opened up to third parties (not just selling to Amazon), the negotiation cycle for cooperation is long, and Rivian did not disclose any progress on third-party collaborations during this earnings call.

At the same time, Rivian guided that the delivery volume for Q1 2025 would be only 8,000 vehicles, a decrease of 41% compared to Q1 2024, while production is expected to be 14,000 units, indicating that there are still issues on the demand side, which implies that Rivian currently has very few orders on hand.

Therefore, overall, whether looking at the entire year of 2025 or the delivery guidance for Q1 2025, Rivian's demand side is under pressure, just as the market is concerned. The high probability of a pause or cancellation of IRA subsidies after Trump's administration has a significant negative impact on Rivian's demand, which is a major bearish factor.

(Although Rivian's previous vehicle prices were relatively high, and some models did not meet the IRA subsidy requirements for vehicle prices (with a cap of $80,000), there were still loopholes in the IRA subsidies that users could exploit, allowing them to enjoy IRA-subsidized prices through leasing, with leasing accounting for 42% of total sales in Q3 2024.)

At the same time, looking at the key automotive business gross margin, due to the implied weak demand in the guidance, the market is concerned that the rising revenue per vehicle this quarter may not be sustainable. Rivian still faces significant price reduction risks in 2025, especially in the context of IRA subsidy cancellations and the blank year for Rivian's own models.

Combined with the fact that the reduction in variable costs per vehicle in Q4 (which are mostly material costs) did not meet expectations, it can be anticipated that in terms of actual automotive business performance (excluding regulatory credit impacts), the real automotive business gross margin in 2025 may continue to deteriorate compared to Q4 2024 (the cost reductions brought by the second-generation R1 updates have ended, and there is still a risk of declining revenue per vehicle, while fixed costs per vehicle are expected to rise due to the year-on-year decline in delivery volume in 2025). The upward trend in automotive business gross margin this quarter may not be sustainable, and Rivian still expects a negative automotive gross margin in 2025.

Additionally, due to the cost reductions reflected in this Q4 financial report being below expectations, the market is also concerned that the cost reduction for the R2, which has a starting price of only $45,000, may still be quite challenging (although management continues to claim that the BOM cost of the R2 is only half that of the R1, and the non-BOM sales cost reduction exceeds 50%).

On the overall financial statement gross margin, Rivian expects regulatory credits to contribute $300 million in revenue in 2025, which is basically flat compared to 2024, indicating no incremental increase. However, in terms of software and service revenue, Rivian expects total revenue for 2025 to exceed $1 billion, nearly doubling from $480 million in 2024 (mainly contributed by cooperation with Volkswagen).

At the same time, Rivian expects the gross margin for software and service business to reach around 30%, contributing approximately $300 million to the gross margin, which is expected to have a positive contribution of 5-10 percentage points to the overall gross margin in 2025. Especially under the pressure on the automotive business in 2025, this will provide some support for the gross margin on the financial statements. Rivian expects the overall gross margin on the financial statements to turn positive in 20255. The financing situation with Volkswagen is progressing normally, but the loan issuance from the U.S. Department of Energy still has uncertainties

Rivian reported an operating loss of $660 million this quarter, with the operating loss rate improving due to ① a significant increase in gross margin; ② relatively good control over research and development and sales expenses, overall lower than market expectations, and with the increase in revenue, operational leverage has been released, improving from -133% in the previous quarter to -38% this quarter.

However, Dolphin Research mentioned in a previous deep dive on Rivian that the Rivian R1, due to its high price positioning, still has a limited audience, with annual sales of only about 50,000 units unable to support the huge research and development and sales expenses. Rivian still needs to rely on the next generation R2 to achieve self-sustainability, turning operational cash flow and adjusted EBITDA positive, so funding is crucial for Rivian, which is still in a continuous cash-burning state.

From Rivian's current cash flow perspective, the company has $7.7 billion in cash this quarter, an increase of $2 billion compared to the previous quarter, mainly due to a $1.9 billion increase in operating cash flow, with the fourth quarter's operating cash flow successfully turning positive ($1.2 billion).

The positive operating cash flow is mainly due to ① fourth-quarter sales exceeding production, leading to a reduction in inventory vehicles, releasing about $500 million in cash flow; ② net profit improved by $350 million due to the increase in gross margin; ③ adjustments in deferred revenue released about $1.6 billion in cash flow.

Looking at the guidance for 2025, the adjusted EBITDA is still expected to be around -$1.7 billion to -$1.9 billion (approximately equal to operating cash flow), with capital expenditures of $1.6 billion to $1.7 billion, meaning Rivian will still need to "burn" about $3.5 billion to $4 billion in cash in 2025, higher than the market expectation of $3.1 billion cash consumption in 2025. Therefore, with Rivian's current cash on hand, it can only support less than 2 years of production, making financing to support R2 production very important.

Rivian announced that it expects to obtain the remaining $3.5 billion from its joint venture with Volkswagen between 2025-2027 (depending on the achievement of specific milestones), as well as up to $6.6 billion in loans from the Department of Energy (for the construction of the Georgia plant, supporting the expansion of R2 and the production of R3). However, the loan issuance from the Department of Energy still has strong uncertainties (approval from the Biden administration), and since the Trump administration took office, there has been increased control over this funding. If it cannot be smoothly implemented, it will still be a significant negative for Rivian.

Dolphin Research's in-depth study and follow-up comments on Rivian include:

Financial Report

August 7, 2024 Financial Report Commentary: “The White Angel” Volkswagen, will it become the “Tesla Killer” Rivian's Savior?August 7, 2024 Conference Call: "Expected to continue increasing Rivian's Q4 single-vehicle ASP with the launch of three-motor and four-motor versions"

February 22, 2024 Earnings Report Review: "Gross profit and sales both under pressure, can 'Tesla killer' Rivian survive the death line?"

February 22, 2024 Conference Call: "Order volume has significantly decreased, but still maintains the plan for positive gross profit in 24Q4"

November 8, 2023 Earnings Report Review: "Rivian exceeds expectations again, does the 'Tesla killer' have hope to cross the death line?"

November 8, 2023 Conference Call: "Rivian: Continuing efforts for positive gross margin in 24 (3Q Conference Call Minutes)"

In-depth

December 6, 2023 In-depth: "Rivian: Is the Cybertruck a death sentence? The fatal injury is being disabled first"On December 4, 2023, in-depth analysis "[Rivian (Part 1): "Injured before the battle", Tesla's killer becomes the killed?"(https://longportapp.com/zh-CN/topics/10536425?app_id=longbridge)

On July 7, 2022, in-depth analysis "Amateur" or "Superman"? The dilemma of Tesla killer Rivian"

On March 8, 2022, in-depth analysis "Little Superman's Pickup: Rivian's Ambition"

Risk Disclosure and Disclaimer of this article: Dolphin Research Disclaimer and General Disclosure