Rivian: Narrowing Losses, R2 Mass Production Imminent, Is Rivian's Dawn Approaching?

$Rivian Automotive(RIVN.US) released its Q3 2025 earnings report after U.S. market hours on November 5, 2025. Overall, Q3 performance was solid, showing recovery from the trough in Q2. Key highlights:

1) Gross margin turned positive again in Q3: Despite Rivian still facing headwinds from the phase-out of pure-margin carbon credit revenue (virtually no carbon credit recognition in the second half) and negative impacts from tariffs on vehicle sales costs, even though Rivian's vehicle sales volume remained strong (up 24% quarter-over-quarter), the market still did not assign an optimistic gross margin expectation to Rivian. The market expected Rivian's Q3 gross margin to remain negative (-3.3%).

However, the actual Q3 gross margin was 1.5%, turning positive again, representing a 16.4 percentage point improvement from the Q2 trough of -15.8%, primarily driven by a significant quarter-over-quarter increase in vehicle sales gross margin and better-than-expected performance in software and services.

2) Vehicle sales gross margin increased significantly quarter-over-quarter, mainly benefiting from lower per-unit costs: Excluding impacts from carbon credits and inventory write-downs, the true vehicle sales gross margin also improved by 20 percentage points from -33.4% in Q2 to -13.5% in Q3, mainly due to a quarter-over-quarter decline in fixed per-unit depreciation and amortization costs resulting from higher production volume, as well as a decrease in variable costs due to lower raw material costs. This was Rivian's best quarter for true gross margin performance since starting vehicle sales.

3) Overall revenue exceeded expectations, with both automotive and services performing well: Q3 vehicle sales revenue (including carbon credits) was $1.14 billion, up 23% quarter-over-quarter, primarily driven by increased sales volume due to pre-phase-out rush buying of IRA subsidies. The average selling price per vehicle remained largely flat quarter-over-quarter, halting the previous declining trend, also benefiting from pre-phase-out rush buying effects of U.S. IRA subsidies, which temporarily stimulated strong demand without requiring price discounts.

Software and services revenue also performed well this quarter, reaching $416 million, a further $40 million increase from the previous quarter, largely contributed by the joint venture with Volkswagen, which accounted for half of the services revenue.

4) Maintained full-year 2025 target for gross margin breakeven and unchanged EBITDA guidance: Despite market concerns about negative impacts on Rivian's demand after Q4 IRA subsidy phase-out potentially widening losses, Rivian maintained its full-year gross margin breakeven target and its Adjusted EBITDA guidance of -$2.0 to -$2.25 billion. With losses still controlled reasonably despite weak Q4 demand, this alleviated market concerns.

Dolphin Research's overall view:

Overall, Rivian delivered a solid Q3 performance, with both revenue and net profit exceeding market expectations, successfully recovering from the Q2 trough.

Recall that Rivian's deep losses last quarter were mainly due to the phase-out of new energy vehicle support policies following Trump's election and negative impacts from tariff wars. Although Q3 also saw negative effects from carbon credit subsidy phase-out and tariffs, Rivian benefited from pre-phase-out rush buying of IRA subsidies, leading to a quarter-over-quarter recovery in vehicle sales volume. Resilient demand during the Q3 installation rush meant no discounts were needed, resulting in strong vehicle sales revenue.

On the vehicle sales gross margin front, higher sales volume and Rivian's further reduction in procurement costs drove a significant improvement, making this Rivian's best quarter for gross margin performance since starting vehicle sales.

Despite market concerns about negative impacts on Rivian's demand after Q4 IRA subsidy phase-out potentially widening losses—especially after Rivian narrowed its full-year 2025 delivery guidance from 40,000-46,000 units to 41,500-43,500 units, implying Q4 deliveries of 9,000-11,000 units (down from Q3's 13,200 known deliveries)—Rivian maintained its full-year gross margin breakeven target and its Adjusted EBITDA guidance of -$2.0 to -$2.25 billion. Implied Q4 Adjusted EBITDA is -$400 to -$650 million (Q3 was -$600 million), with overall losses still controlled reasonably, alleviating market concerns.

For Rivian, the biggest focus remains on the R2 model set for mass production next year, with further updates provided in this earnings call:

① Pricing: Starting price remains at $45,000 (below the U.S. new car average of $50,000);

② Capacity: Currently produced at the existing Normal factory, with planned total annual capacity increased to 215,000 units (including 150,000 R2 units).

The new Georgia factory will begin construction in early 2026, with two-phase production ultimately reaching 400,000 units annually (producing R2 and R3 models), expected to start production by late 2028. Thus, R2 will initially be produced at the Normal factory.

③ Production timeline: Manufacturing validation prototypes to start by end-2025, with R2 production and deliveries beginning in H1 2026 (limited volume in H1, scaling up in H2), expecting full utilization of Normal's 215,000 unit capacity by 2027.

④ Costs only half of R1:

a. BOM cost: Through design for manufacturability, component integration/reduction, and supplier contracts, R2's BOM cost is about half of R1's;

b. Assembly conversion and non-BOM costs (e.g., logistics, warranty reserves): Leveraging simplified body and closure systems, network and wiring architecture, and manufacturing experience from R1, expected to be less than half of R1's.

Execution-wise, 100% of R2 procurement is locked in, component costs are fully visible, and management is highly confident in achieving ~50% overall cost reduction and R2's target economics.

Thus, the low-cost R2 story maintains good progress, supporting Rivian's stock as the primary hope despite headwinds in Q4 vehicle fundamentals. With $7.0 billion in cash on hand and up to $6.6 billion in loans expected from the U.S. Department of Energy for the new Georgia factory, Rivian's cash flow issues are largely resolved given an annual cash burn of ~$2.3 billion.

From a valuation perspective, Rivian's 2025 P/S multiple remains at 2.9x, supported by high growth expectations from next year's mass production of the low-cost R2 model.

Details:

I. Q3 Finally Recovered from Q2 Trough

1. Gross Margin Turned Positive Again

Despite headwinds from carbon credit revenue phase-out (virtually no recognition in H2) and tariff impacts on vehicle costs, Rivian's actual Q3 gross margin was 1.5%, positive again, up 16.4 percentage points from Q2's -15.8%, driven by significant improvement in vehicle sales gross margin and better-than-expected software and services.

① Automotive gross margin increased significantly quarter-over-quarter: Reported automotive gross margin improved by 25 percentage points from -36% in Q2 to -11.4% in Q3. Similar to Q2, Q3 saw no carbon credit revenue (pure-margin business) and negative tariff impacts on procurement costs, but vehicle gross margin still delivered better-than-expected improvement.

Excluding carbon credits and inventory write-downs, true vehicle sales gross margin improved by 20 percentage points from -33.4% in Q2 to -13.5% in Q3, due to lower fixed per-unit depreciation/amortization from higher production and lower variable costs from reduced raw material costs.

② Software and services gross margin also performed well: Software and services gross margin increased by 2.7 percentage points from 34.3% in Q2 to 37% in Q3, largely due to high-margin technology licensing revenue from the Volkswagen joint venture (half of services revenue), as well as improved margins in other services like used vehicle sales, maintenance, and repairs.

2. Lower Per-Unit Costs Drove Better-Than-Expected True Automotive Gross Margin

Assessing Rivian's true automotive gross margin is complex due to various accounting adjustments (LCNRV inventory write-down reversals, one-time costs, etc.).

This quarter's true vehicle sales gross margin (excluding carbon credits and inventory write-downs) was Rivian's best historical performance, improving significantly by 20 percentage points from -33.4% in Q2 to -13.5% in Q3.

Per-unit economics details:

1) Per-unit revenue: Flat quarter-over-quarter

Q3 average selling price per vehicle was $87,000, largely flat quarter-over-quarter, halting the previous decline, due to pre-phase-out rush buying of U.S. IRA subsidies temporarily stimulating strong demand without price discounts.

2) Per-unit cost: Significant decrease of $18,000! Main driver of gross margin improvement

a. Per-unit depreciation/amortization cost decreased by $8,000 due to higher production

Q3 per-unit depreciation/amortization cost decreased by $8,000 to $9,000. Despite a 3-week factory shutdown to prepare for R2 production, negative impacts from tariffs on supply chain disruptions were largely eliminated, and production volume increased 79% quarter-over-quarter to 10,700 units, driving down per-unit depreciation/amortization.

b. Per-unit variable cost also decreased quarter-over-quarter due to lower procurement costs

Q3 per-unit variable cost decreased by $10,000 to $89,000, mainly due to significantly lower procurement costs, even with ~$2,000 negative tariff impact.

Rivian expects negative tariff impacts on per-unit costs to reduce to hundreds of dollars after policy implementation, as Section 232 extends the 3.75% MSRP tariff offset to 2030 and Rivian's vertically integrated model (in-house R&D and production) qualifies for "more component tariff exemptions," further driving down variable costs.

c. Per-unit gross profit increased by $17,000

Q3 per-unit gross profit increased by $17,000 to -$12,000, with true automotive gross margin improving by 20 percentage points from -33.4% in Q2 to -13.5% in Q3.

3. Overall Revenue Also Performed Well

Q3 total revenue was $1.56 billion, above market expectations of $1.49 billion, due to:

① Vehicle sales revenue (including carbon credits) of $1.14 billion, up 23% quarter-over-quarter, driven by pre-phase-out rush buying, with sales volume up 14% to 13,000 units (as guided, Q3 was Rivian's highest sales quarter). Average selling price per vehicle was flat quarter-over-quarter, benefiting from rush buying effects without discounts.

② Software and services revenue of $416 million, up $40 million quarter-over-quarter, largely due to the Volkswagen joint venture contributing half of services revenue.

4. Adjusted Net Profit Also Better Than Expected

On the bottom line, adjusted net profit improved by $130 million quarter-over-quarter to -$790 million, better than market expectations of -$880 million. Although R&D expenses increased due to R2 prototype development and autonomous driving training, and SG&A rose due to channel expansion, better-than-expected gross margin drove the improvement.

For full-year 2025 guidance, despite narrowing delivery guidance from 40,000-46,000 to 41,500-43,500 units (due to Q4 IRA phase-out headwinds), Rivian maintained its Adjusted EBITDA guidance of -$2.0 to -$2.25 billion, also better than market expectations.

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Dolphin Research's in-depth research and tracking comments on Rivian include:

Earnings Reports

Aug 7, 2024 earnings review: Will "White Knight" Volkswagen Become the Savior of "Tesla Killer" Rivian?

Aug 7, 2024 earnings call: Rivian Expects Further ASP Increase in Q4 with Tri-Motor and Quad-Motor Launches

Feb 22, 2024 earnings review: Gross Margin and Sales Under Pressure, Can "Tesla Killer" Rivian Survive?

Feb 22, 2024 earnings call: Order Volume Significantly Reduced, but Q4 2024 Gross Margin Turnaround Plan Maintained

Nov 8, 2023 earnings review: Rivian Exceeds Expectations Again, Can "Tesla Killer" Cross the Survival Line?

Nov 8, 2023 earnings call: Rivian: Continuing Efforts for 2024 Gross Margin Turnaround (Q3 Call Minutes)

In-Depth

Dec 6, 2023 in-depth: Rivian: Cybertruck Death Sentence? Congenital Defects Are the Fatal Flaw

Dec 4, 2023 in-depth: Rivian (Part 1): "Crippled Before Battle," Tesla Killer Gets Killed?