The automotive industry, akin to a tumultuous sea, is encountering shifting winds. The once-explosive growth in battery-powered electric vehicles (EVs) seems to have hit a snag. Merely months ago, new EV sales surged by 51% annually. Fast forward to the first quarter of 2024, and this growth rate plummeted to zero. A stark reality where the number of EVs sold mirrors that of a year prior has unfolded.
Enter plug-in hybrids. These adapters of technology, blending battery charging with gasoline engines, are on a rampant 50%-plus annual growth trajectory. They are heralding the resurgence of the automotive market this year. This resurgence has sparked Ford‘s (NYSE: F) decision to ditch an all-electric SUV plan in favor of a plug-in hybrid model.
This strategic pivot by Ford poses a pertinent question: what implications does it hold for the innovative forces like Rivian Automotive (NASDAQ: RIVN) in the realm of all-electric pickups and SUVs? Let’s delve deeper into the implications.
Redefining Ford’s Product Approach
A few years back, Ford embarked on vigorou investment in battery technology and EVs. The Mustang Mach-E and F-150 Lightning spearheaded its foray into the electric domain. In 2021, it unfurled an $11.4 billion blueprint to erect American factories generating batteries and electric cars. Current developments reveal a stark deviation from this vision.
Ford’s forthcoming SUV lineage has pivoted towards plug-in hybrids from fully electric variants. Nonetheless, this doesn’t nullify Ford’s hefty $11.4 billion outlay, as plug-in hybrids necessitate substantial lithium-ion batteries. The scale of raw materials for these batteries shrinks significantly, culminating in cost savings. Noteworthy is the burgeoning preference for plug-in hybrids – with a whopping 59% upsurge in Q1 2024 – amidst a stalled growth in full EV sales in the US.
Evidently, the consumer chorus lauds the adaptability of plug-in hybrids over the all-electric models championed by Rivian and Tesla. But what auguries does this hold for these firms?
A Two-Edged Blade for Rivian
Optimists would contend that Rivian stands on the right side of the history tapestry. Their exclusive lineup of all-electric SUVs and pickups harmonizes with the burgeoning clamor for eco-friendly driving options. Yet, a bitter subplot looms.
Rivian’s market penetration maps a stagnant trajectory. Production figures have plateaued around 60,000 vehicles per annum, notwithstanding a marginal uptick in deliveries – a trend predicated on clearing 2023 inventory bulges. The current plateau aligns astutely with the skyrocketing demand for plug-in hybrids.
The Achilles’ heel surfaces in the turbulence surrounding larger batteries requisite for SUVs and pickups. Enormous batteries spike input costs, a premium consumers balk at paying. Despite a $75,000 starting point for a Rivian truck, the company grapples with a jolting negative 41% gross margin.
RIVN Gross Profit Margin data by YCharts.
Assessing Rivian Stock’s Prospects
The burgeoning trend towards plug-in hybrids spells peril for Rivian’s prospects. The company hinges on a clientele willing to splurge on premium EVs and scale up production to veer its gross margins from the negative lane to the positive realm – a trajectory Tesla navigated with Model 3’s ascension.
The capital-intensive journey to launch a new vehicle breed demands substantial financial outlays. Rivian’s annual financial blaze of $5 billion juxtaposed against a paltry $8 billion cash reserve forecasts a grim timeline for investing in plug-in hybrids sans substantial external funding injections.
Until recent times, Rivian showcased a glimmer of hope with increasing gross margins. Despite the prolonged stretch ahead, a segway towards profitability was discernible whilst scaling up production. However, margins now languish distressingly in the negative territory, parallel to the ebb in production and customer deliveries – a backdrop beautifully synced with the plug-in hybrids groundswell in the US.
If the surge of plug-in hybrids persists, Rivian’s struggle will endure. My vantage suggests that prudence beckons investors to steer clear of this high-risk, unyielding stock in the prevailing tempestuous climate.
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