Rivian: Thank You, Apple! (NASDAQ:RIVN)

The EV sector has had a tough year with waning demand. The EV manufacturers surviving the slump like Rivian Automotive, Inc. (NASDAQ:RIVN) are poised to benefit from the next up cycle in EV demand without competitors like Apple (AAPL) in the market. My investment thesis is ultra Bullish on Rivian with the company moving full-speed ahead with new vehicle models while the competition disappears.

Apple Car Terminated

As Rivian moves full speed ahead with the new R2 models, competitors continue to scale back in the EV market. The latest company to exit the EV market never officially entered the market.

Apple was long rumored to be working on a self-driving EV going on the way back to 2014 in “Project Titan”. The tech giant announced last month the intention to terminate the development of an EV in favor of pushing generative AI work. The Apple Car project included 2,000 employees reassigned to AI or laid off.

The company spent years and billions of dollars working on the Car project. The fear of any EV entrant was that Apple would use billions in operating cash flows to fund a dominant entrant into the space with an infotainment system integrated with iPhones and other Apple hardware and software.

Now, the tech giant has already exited the space, likely due to issues with finding a manufacturing partner and troubles with scaling EVs set to top $100K each. Apple turned a cell phone into a computer in your pocket warranting higher and higher ASPs for the smartphones, but most consumers have no financial ability to afford a high-end vehicle.

As discussed in the previous article, Ford (F) pulling back on EV development is a bullish development for Rivian. Now Apple has exited the market before starting to set up a grand scenario where Rivian has far less competition when the EV market fully develops down the road.

U.S. EV sales topped 1 million units for the first time in 2023 for ~7% of the market. EV sales are even forecast to reach 1.9 million units this year to reach 13% of total vehicle sales while global EV sales are set to top 15 million due to China having a thriving EV market with lower end options.

Rivian is on path for reaching positive vehicle gross margins this year while feared top competitors are exiting the market.

Full Speed Ahead

Just a few weeks back, Rivian unveiled both the R2 and R3 vehicles. Due to the slowdown in the EV market and the reduced competition, the company has been able to delay the massive cost of a new manufacturing facility in Georgia in favor of building the lower cost R2 models at the current plant with a starting price of $45,000, pulling forward the release date.

Rivian predicts the R2 will launch in 1H’26. The company will have the R1S, R1T, EDV and the R2 providing a solid lineup of SUVs, trucks, and work vans.

The R3 crossover EV and the premium R3X version will shortly follow the R2 production start. The company projects saving $2.25 billion in capex and product development costs via starting R2 production in the Normal plant.

The company has already been able to ramp up quarterly production to over 17K vehicles before plant modification during Q2 will help speed up production and drastically cut out fixed costs. The current plant has the capacity to produce 150K vehicles annually providing Rivian with plenty of growth behind the 2023 production levels before needing the new manufacturing plant costing several billion to build. The new plans is for production at the Normal, Illinois plant to expand to 215K units.

The stock has slipped due to a combination of EV demand dynamics and fears Rivian won’t ever generate a profit with the lower demand environment. The company lost $43K per vehicle in Q4, though a huge improvement above the prior year levels.

The losses are still massive considering Rivian is in essence selling vehicles at around $80K and the costs are above $120K each. The company expects to cut 50% of those losses via a reduction in variable costs from R1 engineering design changes, commercial supplier negotiations, and lower raw material costs. The plant shutdown during Q2 will cut fixed costs reducing 35% of the vehicle losses and bridge the gap towards positive vehicle gross profits.

Rivian ended 2023 with a cash balance of $9.4 billion providing the funding to make material progression to reach positive gross profits. As the EV company builds a full suite of EV models and a manufacturing base, other competitors are pulling back on electrification plans.

The company has definitely hit some speed bumps with demand for R1s hitting a wall considering their average price of ~$80K. The news of pulling forward the R2 with a starting cost of $45K and expanding the production capacity in Illinois was a huge positive, but the stock trades at the lows.

Rivian is on the pace of a nearly…