Rivian and Lucid: The Costly Reality of Electric Vehicle Production

Electric Vehicle Earnings Reports: A Reality Check

This week's earnings reports have cast a stark light on the viability of the electric vehicle (EV) future. It has become evident that, while electric vehicles are touted as the future of transportation, EV-only companies like Rivian and Lucid are grappling with significant financial losses. The dynamic between having wealthy investors and the survival of these companies has never been clearer.

Financial Struggles of Rivian and Lucid

Both Rivian and Lucid reported their second-quarter earnings recently. The numbers reflect a continuing trend of red ink:

• Lucid: Reported a net loss of $643 million, an improvement, but still substantial, compared to the $764 million loss in Q2 of 2023.
• Rivian: Lost a staggering $1.46 billion, which was $300 million more than losses in the same period in the previous year.

This continued financial decline raises questions about the sustainability of EV-only enterprises.

Importance of Wealthy Investors

Both companies have secured backing from wealthy investors, which is crucial for their continued operation. For Rivian, Volkswagen’s commitment of up to $5 billion has been a lifeline, while Lucid enjoys the support of Saudi Arabia’s Public Investment Fund, which plans to inject an additional $1.5 billion into the company.

Challenges Faced by EV-Only Companies

The struggles of Rivian and Lucid highlight a broader issue for pure-play EV companies. Unlike traditional automakers, which can rely on sales from gasoline or hybrid vehicles, these companies are entirely dependent on EV sales. With slower than anticipated market growth for electric vehicles, both companies face increased challenges in covering operational costs.

The "EV Valley of Death"

Currently, Rivian and Lucid find themselves in the "EV valley of death,” a term describing a phase of growth that can drain resources without significant revenue generation. While both are actively working to revamp their vehicle lineups — Lucid with the Gravity SUV and Rivian with the R2 — the investment in development and production poses a significant financial strain.

Forecast and Operational Adjustments

Despite the financial hurdles, both companies project cautious optimism for the year:

• Lucid: Plans to sell an estimated 9,000 Air sedans this year.
• Rivian: Expects to produce 57,000 vehicles, maintaining previous production levels, and anticipates a modest gross profit by the fourth quarter.

To navigate the lean financial periods, both Rivian and Lucid are undertaking cost-cutting measures. Rivian has rolled out upgraded versions of its models that are cheaper to manufacture, while Lucid has laid off approximately 400 employees, accounting for about 6% of its workforce.

The Role of Investors in Shaping the Future

During earnings calls, executives from both companies acknowledged the significant support from their investors. Rivian CEO RJ Scaringe noted the importance of the VW deal, stating it lessens risks associated with their balance sheet, allowing them to focus on their product launches.

Conversely, Lucid CEO Peter Rawlinson candidly addressed the concerns of investor patience, highlighting regular communications with their majority shareholders and reassessing the narrative around reliance on funding.

Conclusion: What Lies Ahead for EV Companies?

As the electric vehicle industry continues to evolve, the financial viability of companies like Rivian and Lucid remains in question. Their survival hinges on lucrative investments, effective cost management, and ultimately, whether they can generate consumer demand. As the landscape grows increasingly competitive, these companies must adapt quickly or risk facing dire consequences.