New car launches are always very exciting. Rivian's R2 and R3 arrived last week. One is in the SUV class and the other is in the Crossover class. They are more economical vehicles than the vehicles currently sold by Rivian. These appeal to the middle segment. You can basically view the R2 as a Model Y rival. So will these new vehicles save Rivian? Don't get me wrong, Rivian is not a company that is going bankrupt. But it's really a company in deep trouble, and can a company in trouble save itself with a new product launch? Only if we love a company's products, and I love Rivian's products, and consumers also love Rivian products. Is this enough to invest in the company or not? What might be the investment thesis regarding Rivian, what are the risks? I will talk about all this today.

Rivian is a really interesting case. Because there are very few companies whose products I love so much but whose stocks I fear so much. The R2 launched by Rivian is basically a mid-sized SUV that will compete with the Tesla model Y. It is slightly smaller than the Model Y, but its technological features seem to be superior. At least that's what they said at launch. The promise given to us will be able to go 300 miles. It is a vehicle whose price is around 45000 dollars and which will accelerate from 0 to 100 in 3 seconds. Of course, these three can never meet in the same vehicle. This is never possible. The product has three different trims; including one motor, 2 motor and 3 motor. The one with probably 3 motors will go in 3 seconds with the largest battery having a range of 300 miles and the one with the lowest range with a single motor will sell for $45000. They made this a little confusing in the presentation. People also wanted to confuse him. Because on the one hand, they need to collect pre-orders. On the other hand, they need to make some headlines in the press. Since there were many people talking about Tesla in America, they immediately said, "Look, there are better indicators here than the Tesla Model Y." It's really not possible for those three to meet in one car.

They also gave us a surprise with R2. The launch of R3 took place. R3 is a Crossover and a slightly smaller vehicle than R2. They offered almost no specifications on it. Both vehicles are not yet produced. Only pre-orders are taken. It is possible for R2 to come into operation in 2025 and R3 in 2026. But this is not certain. Because they have given up on investing in factories that will produce them. Both cars were highly appreciated by car enthusiasts. I have always loved Rivian. Both their exterior designs, interior designs and technological features look very nice. There are also a few things they are trying to stand out from Tesla.

For example, they say that they will use slightly larger batteries than Tesla. This will increase the efficiency of the vehicle, so when I look at both industry experts and user comments on social media, everyone is satisfied. They say that Rivian maintains its character and also produces high quality vehicles. I agree with them too, if Rivian can produce them. I say "if it can produce" because Rivian gave up building a factory to produce them. It will squeeze them into the existing factory. Rivian said in its statement that we will save around 2.6 - 2.7 billion dollars if we do not lay the foundation of the new factory. There are gaps in our old factory. We have a capacity of nearly 200000. We produce 60000 - 70000 R1 there. "So we still have room, we will grow there," he said.

Frankly, I think this is not a very logical explanation. It shows that the company has given up on growing on the current R1s. They have already given the target of 57000 for 2024. It is in approximately the same places as last year and the maximum capacity they can allocate here for the new vehicle is around 130000 - 140000. Unfortunately, in the automotive industry, you do not scale well at 130 - 140 thousand. Maybe Rivian will increase its losses even more because of this. There are currently two separate models of Rivian's R1. They are both very nice vehicles, but he sells them for over $75,000. Their prices are too high. That's why it needs R2 to reach the lower middle segment.

But he is not building his factory. Production won't start yet. Best case scenario is 2025, and does Rivian have the stamina to last there? Or do we need to dig a little deeper into the balance sheet to see if difficulties await him on the way? I will do the balance sheet analysis through seeking alpha. There is a painful message that appears when we type Rivian. Warning: RIVN is at high risk of performing badly. If you click on Learn why, you can see the reason. The main reason is the problem in profitability. They gave F for profitability for all profitability indicators. It's going badly except for the stock return. What interests me the most is the gross profit margin here. Rivian is currently losing money on the basic materials and labor in the vehicles it sells, let alone covering its overheads. Negative profit margin is 45%, so if he sells a car for roughly $75,000, he loses over $35,000 - $40,000. On top of that, it has to cover general expenses.

There is a really bad performance here. Seeking Alpa says that the momentum is also bad and therefore gives us a rating between sell or strong sell and says that the ones I call sell generally perform worse than the market. I don't have any investment advice. I'm just trying to convey to you what seeking alpha said. As a matter of fact, when we look at the company's financials, we see that it had a gross loss of 606 million dollars in the last quarter. When the main operating expenses are added, there is a main operating loss of 1 billion 581 million. We see similar performances in the previous quarters.

Of course, there are things that are getting better. The ratio of gross loss to turnover has decreased. But, for example, even if it fell below the average, higher than in the last two quarters. The main operating loss is not at its maximum level. They've had worse damage. When you look, we see 77600%, it is currently 120% negative. Of course, at this point, you may immediately worry about whether the company is in danger of bankruptcy. I don't see such a thing much because it has 9 billion 368 million cash. When we add the inventory, there are 12 billion 313 million current assets. However, current debts are only around 2487. Its total assets are over 16 billion when we include long-term assets. Its total debt is only 7 billion 637. But if it continues to burn cash at this rate, it will burn roughly 1.5 billion in cash every quarter.

In this case, you can see that the company may have problems after about 6 quarters. Moreover, we do not see any investment here. So, whether you want to establish a factory or start producing these new cars within the existing factory, it requires investment. Abandoning the new factory investment may have paved the way for savings of 2 billion 600 million dollars. But a lot of money is wasted in the process of establishing a production where you will add equipment to the existing factory.

When we look at it in this context, I see that Rivian will not be able to realize these productions or bring them to a meaningful level without new cash inflow from outside. External cash inflow means they can take out new debt, issue new shares, find a new partner. But what all this means is that the value of the shares you hold in your share of the company will decrease. Borrowing will increase. When I look at it in this context, I see a lot of risk right now. You might say, this is a new electric car company after all. Of course, Tesla also made losses at the time, but there are some interesting things in the details.

You can see all of Tesla's balance sheets so far on the site called Macrotrends. It publishes its first balance sheet in 2019. It has a turnover of 111 million dollars and a gross profit of 9535000 dollars in its first balance sheet. Of course, the net loss is 51 million dollars, the net loss continues until 2020. But there is no gross loss, which is very important. Because if the company can produce and increase its production, it can cover its main operating expenses. Because it makes gross profit. As Rivian increases its production, its gross loss grows, and the bottom line gets even worse as there is an increase in its gross loss, let alone covering its main operating expenses. Rivian needs to change this. For this reason, they have serious savings programs ahead of them. They are laying off quite a few employees. They gave up on the new factory investment. There are other savings measures, but they are not easy at all.

Because it is necessary to go from losses of 40000 - 45000 dollars per vehicle to a reasonable profit per vehicle, and while doing this, frankly, they will not do this in the environment that Tesla was in from 2009 to 2019. Because there is very serious competition now. First of all, there is Tesla, especially in the American market. Ford has vehicles. Chevrolet has vehicles. There are lots of electric vehicles. The Chinese are producing electric vehicles like crazy. Vehicles are coming from Europeans. So Tesla was the only one at that time. Frankly, he had almost no rivals. For this reason, despite this loss, the investor viewed the company positively and said that it was already making a gross profit. He thought that when this company reached a certain scale, the shares would rise. Rivian may never get there, either.

Because now the company is struggling in a serious competitive environment. In this context, you need to learn a lesson for yourself. Just because you like a company's product, its stock may not be very attractive. But the opposite is not true. If the product is too bad, the stock will eventually crash anyway. Because if the product is bad, its sales will decrease, but it is not enough for the product to be good. Rivian obviously produces very careful products. Obviously, everything has a nice style, the materials used are nice, the resulting vehicles are nice, but if you don't make a profit, what can I do? Therefore, if you are going to be a Rivian investor, never forget that this company will need serious new cash inflows in the future, and perhaps the company will end its life without making any profit or will be sold to someone else.

I think that a company with such beautiful products will definitely come to someone and, in the worst case scenario, buy them. Because the products are truly great. They won't let it sink, but we can't say there is no such risk. At least when we look 6 or 8 quarters ahead. Well the stock could go up. Two fundamental changes are needed here. One of them is that interest rates need to fall. Because Rivian vehicles are also very sensitive to interest rates and are on sale. There is no credit. Just like with Tesla, this is out of Rivian's control.

Secondly, Rivian needs to reduce costs rapidly. It needs to show us gross profit. The CEO says in the last quarter that we will reach gross profit in 2024. Sounds overly optimistic to me, but if they make it happen, the stock will go up from there, or at least we should see the gross loss narrow meaningfully and quickly. Then the stock moves upwards. I'm just trying to read the fundamentals of the company, and although I like their products very much, I can't say I like the fundamentals of the company yet.

The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.