Forget Rivian's Revenue and EPS: This Is the Q3 Number Investors Need to Watch.
Rivian appears poised to finally turn the corner with its automotive gross profit as R2 production continues to ramp up and add additional shifts.
Investors should focus on Rivian Automotive's upcoming Q3 earnings report to gauge whether the company's improving vehicle economics can offset declining regulatory credit revenue and generate significant gross profit growth. The report will shed light on whether the automotive business can generate positive gross profit as production of the highly anticipated R2 model ramps up.
It is noteworthy that software & services generated positive gross profit much faster than automotive, despite bearing a strong 42% gross profit margin during the second quarter. However, automotive gross profit has improved by $299 million over the past year, roughly 3.5 times the $86 million improvement in software and services gross profit.
This improvement in automotive gross profit despite remaining in negative territory highlights the immense potential impact of improved vehicle economics. With Rivian's R2 production ramp-up, investors will get early data on how this affects automotive gross profit. Once Rivian crosses the break-even threshold and operating leverage kicks in, the company can experience a surge in automotive gross profits.
Rivian has expanded R2 production by adding a second shift, which will likely boost automotive gross profits in the coming months. However, investors should keep in mind that regulatory credit revenue will likely decline in the second half of the year, so Rivian will have to lower costs and organically optimize the first shift to offset the loss of credit sales and achieve positive automotive gross profits.
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