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by itsmemattchung 1208 days ago
How does this company — or any company, for that matter — continue operating in the long term with that much significant (i.e. 1B) gross loss?
9 comments

In the land of cheap debt and endless promises, you can continue running a completely irrational business for a very long time. Just look at Uber, who has never turned a profit.

It gets especially bad when you are a new electric car company presenting yourself as a tech company so that you can get tech-company like speculators throwing money at things that make no logical sense whatsoever.

Twitter did turn a profit in 2018 and 2019.
Corrected, thank you
The gross loss is driven by $920M in losses on firm purchase commitments. As I understand it, Rivian has entered into contracts with suppliers to buy some components needed to manufacture its vehicles at fixed prices over some future period of time, likely several years. If the market prices of those components decrease, the value of those contracts also decreases. In some sense this isn't a "real" loss - Rivian will still be buying the same components, at the same prices, on the same dates that it expected to at the start of the quarter. But the market prices of the components went down, which creates a paper loss, which they have to mark to market.

That also creates a timing mismatch - Rivian's revenue in Q4 was $663M and its cost of revenue was $1663M, but most of the $1663M is associated with vehicles that they haven't delivered or even manufactured yet, so they'll recognize that revenue in future quarters. I don't know what it actually costs them to manufacture one vehicle, but I bet it's a lot less than 2.5x the revenue they get from that vehicle.

Leaving aside the accounting and addressing your real question: From a quick search it looks like Rivian has raised a total of $23B of capital between VC rounds and its IPO, and it has $13B of current assets (mostly cash + inventory) as of 12/31, so that gives it a fairly long runway even at its current burn rate. But its burn rate - loosely, revenue minus expenses - is expected to slow over time, assuming that (1) its revenue grows faster than expenses (it's expecting deliveries to ~double this year, which should increase revenue at a similar rate) and (2) its unit economics work out, i.e., its "true" cost of revenue is less than its revenue.

The ratios are different, but Uber lost over $2B last year, and overall, has lost $9B.

Tesla didn't turn a profit for 8 years, until 2020, and from 2016-2018, regularly had 12 trailing months of $1B losses or more.

Worth mentioning the thing that likely motivated TSLA to be profitable is that it’s a requirement to be considered for inclusion in the S&P 500 index.
I don't really think that is worth mentioning. Tesla always wanted to be profitable, to get their they need a high margin mass production vehicle. Since they had that, the Model 3, they have been profitable. The Model 3 was always the plan.
You raise money, you spend that money to make a factory, then you sell whatever the factory makes for a profit, then you pay back your investors.
The point of taking investment is to use it to grow the business faster than it can grow organically.

(It's pretty much impossible to start a car company without outside investment. Just look at its factory.)

They will probably run at a loss until they can figure out how to lower their costs, and then make more volume. Pretty typical stuff, really.

I also suspect they will need outside investment. Given their relationship with Amazon, I could see Amazon supporting them until they're profitable.

Tesla's market cap is approximately 644,59 billion USD now. Apparently, trying to reproduce that success is worth a couple of billions to some people.
The goal is to widen the cash flow and capture as much income as possible.

Sometimes this succeeds wildly: Amazon.

Sometimes the vision fails to materialize: Uber.

Sometimes the vision was fatally flawed from the start: Carvana, MoviePass, ...

They can't, they need to turn it around eventually.

But they have the advantage that the IPO at the exact right moment and have absurd amounts of cash to burn.

If there's belief in the company/product they will get more investments. If not they'll eventually run out of money.