EV makers burning cash due to sky-high raw material and production costs

Many EV start-ups recorded huge losses in September quarter and warn high costs are here to stay due to surging inflation and global supply chain crisis

Rivian's electric vehicle factory in Normal, Illinois. The company is losing hundreds of thousands of dollars due to enormous material and production costs. Reuters
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Every time Lucid Group or Rivian Automotive sell an electric car, they lose hundreds of thousands of dollars due to staggering raw material and production costs, their latest statements showed.

Quarterly reports from electric vehicle (EV) makers from the past two weeks show them struggling to hit delivery targets and rapidly burning through cash.

Lucid's cost of revenue surged to $492.5 million in the July-September quarter from $3.3m a year earlier and its losses widened as customers cancelled orders fearing long waiting times.

The company, which went public a little more than a year ago and is backed by Saudi Arabia's Public Investment Fund, saw its market value shrivel by two thirds this year to about $20 billion from $95bn at its peak in November 2021.

The company said it had enough cash to sustain itself at least into the fourth quarter of next year and is looking to raise about $1.5bn through a stock sale. Its stock price slumped 17 per cent after results and clawed back some losses in the next two sessions to finish on Friday down 4.4 per cent from before it reported.

US-listed British firm Arrival warned last week that it may not have enough cash to keep its business going until the end of next year and would have to cut jobs. It has yet to start mass production.

"I'm not going to sit here and tell you it's not a difficult time," Avinash Rugoobur, president of Arrival, told Reuters on Friday.

"It's tough, we are there every day, every night, working on technologies, the vehicles and also the capital raising."

Canoo in May said it had "substantial doubt" about remaining as a going concern. At the end of September, it had $6.8m in cash and equivalents, down sharply from $415m a year earlier.

A Rivian R1T electric truck outside Munro & Associates headquarters in Auburn Hills, Michigan. Reuters

Many EV start-ups recorded huge losses in the September quarter and warned that high costs were here to stay due to surging inflation and a global supply chain crisis. Only a year earlier, several listed their stocks at heady valuations, lured by the success of Tesla, now the world's most valuable car maker.

Tesla survived what its boss Elon Musk then called "production hell", overcoming supply bottlenecks with battery deals with key suppliers and stepping up production for the smash hit Model 3.

The company, however, faced those challenges in a different time when it was nearly the only pure play EV maker and competition from legacy car makers including General Motors and Volkswagen was nascent.

In the latest quarter, Tesla reported profit of $3.3bn.

"In the EV business ... being early stage is a money-burning exercise, it's difficult to get over the hump," said Canaccord Genuity analyst George Gianarikas.

These companies must find ways to save money if they want to outlast a bad economy, according to analysts. Firms have adopted various approaches.

Rivian is shifting more car deliveries across the US to rail freight, while Lucid is considering it as an option.

Lordstown Motors, which issued a going-concern notice last year that led to the exits of its bosses, has curtailed output.

The truck maker sold a fifth of itself to tech giant Foxconn this month. Last year, it sold its Ohio plant to the Taiwanese firm, a deal forced by the need for funds to start production of its Endurance pickups.

Still, higher output would ultimately reduce the cost per car and limiting production can threaten the path to profitability, analysts said.

Some among these companies are better positioned to survive.

Rivian, backed by Amazon.com and Ford Motor, had $13.8bn cash on hand at the end of last month. It also has a contract to supply 100,000 electric delivery vans to Amazon. But its cost of goods sold was about $220,000 per car versus an average selling price of $81,000 in the quarter, CFRA estimated.

Lessons could be learnt from the 1990s dot-com bubble, Mr Gianarikas said.

"It wasn't always the company with the best business plan that made it," he said. "It was the company with the best balance sheet."

Updated: November 15, 2022, 4:30 AM
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