Electric-truck start-up Rivian recently announced layoffs.
Courtesy Rivian
Fast-growing electric-truck start-up Rivian Automotive is laying off workers. The news surprised the market earlier this week. Now CEO R.J. Scaringe is explaining to employees why cuts are necessary at a Friday meeting.
Rivian (ticker: RIVN) stock dropped Monday after reports that the company was laying off up to 5% of its workforce. Investors found the news jarring. Rivian, after all, is growing quickly. Wall Street projects sales will rise to $6.2 billion in 2023, up from $1.8 billion in 2022. That usually means more workers.
But the stock recovered later Monday, and rose each day the rest of the week after it became more apparent that Rivian was focused on efficiency.
“We’ve implemented changes across Rivian, including prioritizing certain programs (and stopping some), halting certain nonmanufacturing hiring and adopting major cost down efforts to reduce material spend and operating expenses,” wrote Scaringe in an email to Rivian staff provided to Barron’s by the company. “We also began the process of aligning the organization as a whole to ensure we are as focused, nimble and efficient as possible to achieve our priorities and objectives.”
The email adds that layoffs and objectives would be discussed again at a meeting with Rivian employees today.
Scaringe’s objectives include ramping up production of Rivian’s R1T electric truck, ramping production of the company’s electric delivery vans purchased by Amazon.com (AMZN) as well as accelerating development of the company’s next EV platform so it can offer more models at more price points to customers.
As a result, manufacturing jobs look safe. Cuts will come from other parts of the organization.
“The pace of hiring was unsustainable and now that order is starting to be restored at Rivian, some cuts are not a shock,” Wedbush analyst Dan Ives tells Barron’s. “It also sends a signal to the Street that operating costs are being monitored rather than spending like a 1980s Rock Star.”
Spending and cash burn has been an issue for investors and analysts. Rivian expects to use about $7 billion in 2022 and burned through about $1.5 billion in the first quarter of the year.
That’s why Ives perceives the cuts as positive. He rates Rivian stock at Buy and has a $40 price target.
Overall, Rivian remains popular on Wall Street, as 61% of analysts covering the stock rate it at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%.
Wall Street support hasn’t helped much, though. Shares are off about 70% year to date. Inflation and higher interest rates have hit most automotive stocks. Shares of auto makers and the broader auto sector in the Russell 3000 Index are off about 34% year to date.
But Rivian has had some internal problems too. Coming into the year, Wall Street expected the company to ship about 40,000 units in 2022. But ramping production has proved harder than expected. The company now expects to ship about 25,000 units.
Write to Al Root at [email protected]
