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Rivian Automotive (RIVN -5%) encounters a roadblock today, slashing its FY24 production guidance by as many as 10,000 units due to component shortages that have worsened in recent weeks. Investors were already put on alert over possible production setbacks last month after CEO Robert Scaringe commented that the company was running into some supplier-related hiccups. However, the EV maker, known for its electric truck and SUV, the R1T and R1S, respectively, did not alter its guidance, signaling a modicum of optimism that it could navigate the challenges.

Therefore, by reducing its FY24 production outlook to 47,000-49,000 vehicles from 57,000 vehicles previously, RIVN shocked shareholders today, prompting a sharp pullback. Shares are now down by nearly 50% from July highs.

• This is not the first time RIVN has hit some snags on the supplier side. The company paused its Amazon (AMZN) delivery truck production earlier this year due to part shortages. Also, throughout 2022 and early 2023, several suppliers were not ramping parts at similar rates as RIVN's production lines, creating intermittent disruptions.
  • To put into perspective the complexities associated with ramping production in 2022, RIVN more than doubled its units produced just one year later to over 57,000. However, with its updated outlook for FY24, RIVN's production is set to contract yr/yr by as much as 17%.
• While supply lines have normalized since the pandemic, RIVN's problem centers on its second-generation R1 models. In relaunching its Gen 2 models, RIVN underwent a massive upgrade to its network architecture, changing out over half the suppliers and parts. Management added that no part has gone untouched, opening the door for significant supply disruptions.
• These supplier woes also threaten RIVN's goal of achieving positive gross margins by year's end. Last month, when supplier setbacks were not as acute, Mr. Scaringe conveyed firm confidence in reaching positive gross margins by Q4. However, he noted that the company must achieve a certain volume to absorb the plant's fixed costs.

The good news is that RIVN's current headwinds revolve around supply, a problem that often can be more easily fixed than demand. Mr. Scaringe did mention last month that the tone of EVs has grown more politicized, which has altered consumer sentiment. However, the company reiterated its FY24 delivery goal of low single-digit growth yr/yr today, or around 50,500-52,000 units, reflecting sustained demand. RIVN is also developing its R2 platform, eyeing the $40,000-50,000 vehicle market, a segment with few EV choices outside the Tesla (TSLA) Model Y, to broaden its TAM.

Speed bumps have become a regular occurrence for RIVN lately. Macroeconomic headwinds continue to shrink the size of its current price market of over $70,000 as inflation squeezes discretionary income and elevated interest rates hike the cost of financing. Supply disruptions only throw an additional wrench in RIVN's near-term plans. While the company may still be positioned to reach its longer-term goals, including 25% margins, current developments are failing to amp up investor sentiment.