Rivian, Lucid warn of bumpy road ahead as policy changes hurt

Rivian and Lucid posted disappointing quarterly results and issued grim outlooks, with shares falling 4% and 7% respectively, as U.S. policy shifts and trade tensions weigh heavily on the EV sector. Rivian increased its adjusted core loss forecast for the year to between $2 billion and $2.25 billion, citing higher production costs due to supply chain disruptions from China's rare earth curbs and a significant decline in revenue from regulatory credit sales following the Trump administration's removal of emission fines for gas vehicles. Lucid also cut its annual production forecast, anticipating a slowdown in Q4 demand as the federal EV tax credit expires, while both companies face increased costs from tariffs and reduced consumer incentives.

Analysis

Rivian (RIVN) and Lucid (LCID) are confronting significant operational and financial headwinds driven by adverse U.S. policy shifts and persistent supply chain disruptions. Both companies reported disappointing quarterly results and issued grim forward-looking guidance, triggering after-hours share price drops of 4% for Rivian and 7% for Lucid. The primary challenges stem from the Trump administration's policies, including the impending expiration of the $7,500 federal EV tax credit at the end of September and the elimination of emission penalties for gasoline vehicle manufacturers. The latter has decimated the market for regulatory credits, a key revenue source; Rivian now expects this income to be half of its initial $300 million estimate and projects zero revenue from it in the second half of the year. Consequently, Rivian has increased its full-year adjusted core loss forecast to between $2.0 billion and $2.25 billion and revised its gross profit outlook from modest profit to roughly break-even. Cost pressures are also mounting, with Rivian's cost of revenue per vehicle rising 8% to $118,375, exacerbated by lower production volumes linked to China's curbs on rare earth metal exports. While Lucid mitigated some rare earth issues using inventory, it still suffered margin compression from tariffs and has cut its annual production forecast. Both firms anticipate a Q3 sales surge as consumers rush to capture the expiring tax credit, but explicitly warn of a subsequent demand slowdown in Q4.

Key Decisions for Investors

• Investors should anticipate significant revenue and margin pressure for RIVN and LCID in Q4 2024 and beyond, as the expiration of the $7,500 tax credit and the collapse of the regulatory credit market represent structural headwinds to both demand and profitability.
• Monitor Rivian's operational efficiency and per-unit costs following its three-week production shutdown in September, as the successful execution of its retooling for the lower-cost R2 model is now critical to its path to profitability.
• Consider the near-term trading volatility, as both companies forecast a pull-forward of demand into Q3, which could create a temporary spike in delivery numbers followed by a sharp contraction.
• Assess the effectiveness of any countermeasures Lucid and Rivian announce to offset the loss of subsidies, as their ability to compete on price without government support will be a key determinant of market share against incumbent automakers.