Let’s keep going on the climate theme. EV manufacturer Rivian recently announced its participation in the BrightNight Starfire Renewable Energy Center – the largest renewable power project in Kentucky, representing a $1-billion infrastructure investment. Phase 1 construction is – for now – expected to begin in 2025. It isn’t clear when power from Phase 1 will actually be produced. It also isn’t apparent from publicly-available information at this time what up-front investment Rivian made, but they did commit to a power purchase agreement (PPA) for 100 MW of renewable power from Phase 1.
But here is a problem – Rivian may have overreached its business fundamentals in its climate zeal.
At the beginning of October, TheStreet wrote:
“The company sells its vehicles for about $80,000 each but it’s losing $33,000 on each vehicle sold due to high production costs, The Wall Street Journal reported. That’s the case even as the average EV sales price has fallen to $53,376 in August 2023 according to Cox Automotive.
‘EV prices continue to fall, led again by market leader Tesla,’ Cox noted in a recent research note. In August, the average price paid for an electric vehicle was $53,376, down from more than $65,000 one year ago. The average Tesla vehicle price has plummeted 21% on a year-over-year basis.”
Granted, Rivian gets tax breaks to help offset their operating loss. Moreover, according to their most recent 10-Q, the company generates revenue from
“tradable credits … under various regulations related to zero-emission vehicle (‘ZEVs’), greenhouse gas (‘GHG’), fuel economy, renewable energy and clean fuel… [which Rivian has] contracted to sell and intend to sell these credits to other regulated entities.”
But the world is not static – the downward spiral for EV prices (necessary for EVs to become affordable enough for an average buyer) puts downward pressure on Rivian’s MSRP and top line revenues. Heck, even luxury brands normally immune to price pressures are feeling the heat for their EVs – Audi is offering $50,000 in lease discounts (!!!) for one of theirs. Yesterday, The Hill reported “General Motors will delay electric pickup truck production at a factory near Detroit due to slowing U.S. demand for electric vehicles.”
Other EV companies failed this year, although none as advanced in their business cycle as Rivian. Political upheaval in the US also threatens various business advantages. In its 10-Q, Rivian acknowledges this along with a number of material business risks outside the company’s control that seem on the verge of coming home to roost (32 pages worth of operational, financial and general risks, plus a few more related to stock ownership) – it is worth reading. Bankruptcy is plausible.
Did Rivian jump the gun with its investment in BrightNight Starfire? Perhaps. From a practical perspective, companies simply can’t lose sight of their business fundamentals. Being too zealous about climate/ESG initiatives can be counterproductive and financially detrimental – even putting a company out of business. It isn’t prudent to ignore the picture painted by risk factor disclosures. There can also be ripple effects – a Rivian bankruptcy means no PPA revenue for BrightNight Starfire – potentially threatening the economics of that project too.
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