Huge losses are to be expected when a new automaker grows. Building millions of vehicles requires investing billions in equipment and employees. Entire factories need to be outfitted from scratch. Supply chains laid out. Engineers need time and money to develop vehicles and everything they need, from propulsion to suspension to brakes, from the ground up. And those engineers need a human resources department.
And in that context, $1.7 billion isn’t that big a deal when a new automaker has $15.5 billion in cash, and a popular product, some experts say. (Rivian has a backlog of nearly 100,000 orders.)
“It’s a measurement of nothing,” James P. Womack, a fellow at the MIT Mobility Initiative and author of a widely cited book on auto manufacturing, “The Machine That Changed the World,” said of Rivian’s losses. “If they could have totally opened the throttle on their Georgia plant they could’ve lost even more money.”
“For Rivian, so far so good, and too soon to tell,” Womack said of his future. “But I don’t see any red flags.” Rivian CEO RJ Scaringe was a student of Womack’s at MIT in 2009 shortly before starting Rivian. Womack said they still speak from time to time, but he is not an investor in the company.
Big losses aren’t uncommon when introducing a new technology, according to Richard Langlois, a Connecticut professor who has studied the economic history of technology.
“Sometimes huge losses are to be expected in scaling up,” Langlois told CNN Business. “Though [Henry] Ford scaled slowly enough that he never lost money.”
Tesla later raised additional funds, an option that Rivian will have too if its cash hoard dwindles. Rivian counts Amazon as an investor, which had its own long string of losses before producing profits.
Investors haven’t reacted negatively to Rivian’s loss. The stock was up slightly on Friday following the news.
“We believe Rivian is in a great position to capture the massive influx of current and future EV demand,” Wedbush analyst Daniel Ives wrote in a note Friday. He pointed to Rivian reiterating that it is on track to meet its goal of producing 25,000 vehicles this year as proof that it is starting to turn a corner. While 25,000 vehicles produced in a year is far less than Rivian’s competitors — Tesla, for example, produced 930,422 cars in 2021 — it is significant growth as Rivian produced only 1,015 vehicles in 2021.
Building an auto company is a monumental task as it requires hiring a new workforce, creating a new management system and building a new product in a new location.
“You’re doing this with a bunch of strangers from different industrial management traditions, and different technological skills,” Womack said. “It’s kind of amazing anybody can do this at all.”
If Rivian can keep its momentum up, it seems to have as good a chance as any of Tesla’s American rivals.