As the electric vehicle market softens, things look bleak for Rivian (NASDAQ:RIVN). If you invested in Rivian stock you may already have a hint of what to expect when it reports Q1 earnings May 7. RIVN recently announced it produced almost 14,000 vehicles and delivered nearly 13,600. It remains on target to produce 57,000 EVs this year.
Those production and delivery numbers were a preview of what’s to come. What investors need to do is scratch a little deeper below the surface to find the real health of the company. It’s likely not going to be pretty.
A Closer Look at Rivian Stock
All signs indicate Rivian is hunkering down. After losing $5.4 billion in 2023, the EV maker’s expansion plans are on hold. A new manufacturing facility in Georgia will not happen anytime soon. Instead, Rivian will continue producing all of its vehicles at its Illinois plant.
That means Rivian just doesn’t have the demand to justify opening a second plant. That alone comes with risks. Rivian was given numerous tax breaks for agreeing to build in Georgia. If it doesn’t come through, the automaker will have to repay that money.
Although management maintains it is committed to the new plant, that might be easier said than done. Industry first quarter EV sales growth slowed to just 2.6%, according to Cox Automotive.
Only 268,909 EV sales were made compared to 46.4% growth in the year ago period. Worse, sales declined sharply from the fourth quarter, tumbling over 15%. A year ago, they had jumped 15% sequentially.
The rapid deceleration occurring in the EV industry means Q2 will likely see year-over-year sales turn negative. The U.S. market is undoubtedly at a saturation point.
All of the people who want an EV have bought them and the industry has done a poor job of convincing the rest of us that EVs are worth buying.
Things Will Get Worse
It is why investors will need to look closely at Rivian’s financials when they come out. After quickly rising throughout all of last year, sales growth stalled in the fourth quarter.
While more than doubling year over year, that’s not a very high hurdle to get over when you are essentially starting from nothing. Sales, though, fell from $1.337 billion in the September quarter to $1.315 billion in the December period.
Now Rivian is saying deliveries are also ebbing sequentially. In Q4, it delivered 13,972 vehicles and now says Q1 will show 13,588 deliveries. If the EV market is drying up as rapidly as it seems, the second quarter is going to be even uglier.
Not that the quarter Rivian is about to report will be pretty. The EV maker said that even as its revenue declined, gross profits (losses, actually) worsened.
Where it lost over $30,000 on every vehicle delivered in Q3, it lost over $43,000 on each one in Q4. There’s nothing to suggest first quarter numbers will be any better. In fact, they will probably be worse.
Surviving the Shakeout
I recently wrote that after Tesla (NASDAQ:TSLA) slashed 10% of its global workforce, or some 14,000 people, Rivian will likely be one of the next manufacturers to lay off workers even though it has already gone through two rounds of firings.
Although Rivian has made some landmark achievements, the electric vehicle industry is no longer a growth market anymore. Even though record numbers of EV sales were made last year, we’ve probably reached the peak despite analysts’ continued rosy outlook.
We’re going to see an EV industry shakeout soon. Bankruptcy or consolidation can be the only outcome as the market cannot sustain so many manufacturers. It’s possible Rivian Automotive will be one of the survivors.
It has a 5% share of the EV market, good enough for third place, but there is little consolation in being a small fish in a small pond. We’ll get a better sense of which way Rivian is driving on May 7.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.