Rivian Investors Face a Real Setback

Globe and Mail

11 hours ago

Key Points
Rivian's net loss narrowed, but tariff impacts weighed on results.
Losing regulatory credit sales is a big loss for Rivian.
The company's future increasingly relies on the upcoming R2 EV.
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It's been a bumpy ride so far this year for Rivian (NASDAQ: RIVN). With the much-hyped R2 not launching until 2026, the company's sales have been sluggish and the addition of tariffs on imported auto parts threw a curveball few, if any, were ready for. Let's take a quick look at Rivian's second quarter and one very real setback investors may not have prepared for.
Brief Q2 recap
Rivian's second-quarter revenue rose 13% from the prior year to $1.3 billion, and its second quarter checked in with a net loss of $1.1 billion. The net loss was an improvement over the prior year's $1.5 billion net loss. Rivian's adjusted earnings per share checked in at a loss of $0.97, much worse than analysts expected at a loss of $0.80 per share, per Factset. Rivian did reaffirm its 2025 delivery guidance of 40,000 to 46,000 vehicles -- though it's going to take a strong second-half performance to reach.
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Another important metric for investors to follow is Rivian's gross loss, which checked in at a $206 million loss during the second quarter, still better than the prior year's loss of $451 million. But it's still a slight disappointment considering investors hoped Rivian would be gross-profit positive for the full year after posting gross profits during both the fourth and first quarters. Rivian also lowered its adjusted EBITDA loss forecast for the full year, expecting it to check in between $2 billion and $2.5 billion, compared to the previous forecast of between $1.7 billion and $1.9 billion.
But there was one big glaring hurdle facing Rivian and its investors.
Goodbye gravy-train?
Rivian investors should be well aware the company manufactures and sells an electric SUV, truck, and delivery van, but they might not be aware that the company also generates a significant chunk of its business from selling zero-emissions credits.
This is how it works in a simplified explanation. Manufacturers such as Tesla, Rivian, and Lucid that produce and sell electric vehicles receive credits for those vehicles meeting emissions standards. On the flip side, automakers were previously penalized for missing those emissions targets, and one way to meet the requirements was to simply purchase zero-emission credits from automakers that didn't have to worry about offsetting an internal combustion vehicle lineup.
But the administration's removal of the emissions penalty did one huge thing -- it completely removed the incentive for automakers to purchase zero-emission credits since they are no longer penalized for missing targets. It's the equivalent of shutting off a hose that was flowing cash.
"We do not expect to earn revenue from these programs for the remainder of 2025. We expect total 2025 regulatory credit sales to be approximately $160 million as compared to our prior outlook of $300 million," Rivian CFO Claire McDonough said.
What it all means
It's not a stretch to say even Tesla may have shuttered its doors in the early days without sales of these credits. They're incredibly important to young EV makers. This is a big loss for Rivian, and without sales of zero-emission credits the company will almost certainly fall short of gross profits during 2025. The silver lining is that Rivian already completed its task of two consecutive quarters of gross profits, which secured $1 billion of direct equity from Volkswagen as a part of their joint venture.
Losing revenue from zero-emission credits is certainly a setback, and a letdown investors likely didn't anticipate when initially investing in the automaker. But it's not a death sentence either. The company's future still largely remains in the hands of its upcoming and highly anticipated R2 electric SUV, R3, and R3X, with the first R2 rolling out of production in the first half of 2026. If the R2 is a success, investors will forget about lost revenue and profits from zero-emission credits.
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