Is it possible that Rivian and Lucid the EV auto manufacturers looking to compete with Tesla could end up going bankrupt In this video inspired by a comment from Elon Musk We're going to go through the financials of both Arivian and Lucid and we're going to compare them to Tesla when Tesla was at a similar stage of production and the results are quite shocking. So shocking in fact, that it is not a surprise that Mr Elon Musk himself provides a warning for these two companies. Here it is. unless something changes significantly with Rivian and Lucid, they will both go bankrupt.

They are tracking to bankruptcy. Shout out to the Velocity channel for pointing out this clip here. but let's go ahead and break down some of the financial differences between these companies and where Tesla was at similar levels of production. and again, the results are quite as shocking.

Keep in mind we've got coupon code PP expiring this Friday when I go, ring the bell New York Stock Exchange So take advantage of that coupon code. We'll be releasing a ton of new lectures this month in December for the stocks and psychology of money group, the real estate investing zero to millionaire group, and of course the Elite Hustlers group. the new course that just dropped which gets you special access to Elite Hustler live streams that begin next month. Okay, so first we're going to go ahead and look at Rivian.

So in Q3 2022, Rivian ended up producing 7 363 vehicles and delivering about 6584 of them. What I'd like to do to set the stage is: look at when Tesla was similar to delivering around 6 500 vehicles and I found that this quarter here where Tesla delivered roughly about a thousand more vehicles, but put some I would say close enough puts them at 7785 delivered Vehicles eight years ago. so Tesla was roughly at Rivian's position eight years ago. However, their actual underlying fundamentals are in drastically different places.

So the first thing that we have to understand is on the income statement. So I'm going to draw this out very very simply. First, First, you have to remember this that if you make 100 of Revenue come on Mr iPad There we go. If you make a hundred dollars of Revenue you have to subtract from that something known as your cogs, your cost of goods sold.

And if it costs you eighty dollars to produce that one hundred dollars in Revenue then you're left with twenty dollars. This is your gross profit and this gross profit is very important. You can also call this a gross profit margin. In this case, the gross profit margin would be twenty percent or Twenty divided by one hundred.

So that's what's left over divided by what your Revenue was right. After this, of course come things like the operating expenses. and then you have things like taxes and interest and depreciation and those things come off after that and that's how you'll get your ebitda and your net income. But those aren't things that we're really going to pay attention to right now.

We're just going to focus on what was this margin for Tesla And how does that compare to the margin for Rivia and Lucid at similar stages of production? And again, the results are mind-blowing So let's start with Tesla Now, I've already gone ahead and done the math for you, but go through this transition with me in the nine months ending September 30th, 2013, Tesla's gross margin was 21.3 percent. All you do is take this number here, divided by this number and subtract one and make it positive. If you do the math on a calculator, that'll make total sense. But anyway, it works out to about a 21 point three percent margin.

So in other words, for every 100 of Revenue it costs them about 69 ish. Uh, 0.7 right? They were left with 21.3 Then in the nine months the following year, they had a gross margin of about 27.8 percent. Now, do keep in mind these numbers do include some vehicle credits. Okay, they do include vehicle credits, so we have to give credit or credit is due.

Yes, these margin numbers do include electric vehicle credits that Tesla had significant advantages of in the early days of production, which Riven and Lucid do not have as much of an advantage of. But the differences are still quite shocking. So anyway, twenty seven point, eight percent. Uh, over here.

if you go for the three months ended, you see, with the three months ended here, they ended at about 29.5 for the last quarter. That's the quarter where they delivered about 7 700 Vehicles right? Another way to look at this is the margins. Obviously, between 20 to 30 percent. Take out the margin for, you know, for for their tax credits or whatever.

It's certainly positive, right? In fact, we can go ahead and see exactly what those credits are by zooming out for a moment because I know that's going to be a big deal. We'll go ahead and find over here that over here. Automotive Revenue included 31 million dollars of sales to Daimler and it included 93 million dollars of regulatory credits including 76 Zev credits zero emission vehicle credits. So let's just take that 93 million a number there.

And let's go to this particular quarter here. and let's now take off 93 from that top number here. So 849. Now we're going to grab a quick calculator here and we're just going to take off 93 So 849 minus 93.

That brings us to about 7.56 And now you have cost of goods sold of 598.4 So what are we going to do? 598.4 divided by 756? That would be a margin of about 20 point Nearly nine percent. So 20.9 As you can see, the margin is clearly still very strong. It's still above 20, even when you take out all of the zero emission vehicle credits, right? Okay, good. so we take out all of the credits you're positive for Tesla Where then does Rivian sit today? Well, this is, uh, quite substantially different.

Let's just say that. So let's go over here. Uh, and you know what an easy match about? Yeah, Okay, we'll do that in a moment. Take a look at this: I Think this will be pretty self-explanatory So you're going to see a note here that says revenues and then cost of revenues, right? Cost of Goods Sold.

Take a look at these numbers here for 20 for the three months ended September 30th, 2022 And tell me if you notice anything odd right here: this: Top Line is the cost of revenues. This right here is the costs of goods sold. And no, that does not include your operating expenses. All of the operating expenses are actually being listed right here.

Uh, sorry. I should Circle it like this That 857 million dollars right there. Those are your operating expenses. This is supposed to be your gross profit, But what you can see at Rivian is there's actually a lack of gross profit.

So at a similar stage of Tesla production compared to Rivian production, Tesla was profitable. On a gross profit measure, Rivian is not even close. not even close. 536 million dollars of Revenue versus 1.4 billion dollars of costs of goods sold.

Maybe they're trying to ramp factories really quickly? It just seems a little extreme though, because look at this for a Virivian vehicle, they spend two dollars and 71 cents per dollar of Revenue That's what they spend. So in other words, imagine this. Okay, I Want you think about this. Imagine taking 2.71 putting it into a vending machine and getting one dollar out and the company's like, let's do more of this.

Okay, that does not make a lot of logical sense. This is why Elon Musk is like they need to deal with their costs ASAP Otherwise, they're going to go bankrupt. Let's compare to Tesla with the same vending machine. Example: When Tesla takes one dollar at the same level of production or age of production Yes, with the tax credit, but we already adjusted that for margin, you take a dollar and stick it in the vending machine.

What happens? You get a buck 42 out. Well, gee, that's a lot nicer. I Like getting a buck 42 out when I put a dollar in the machine. Now you just keep building and growing and growing and growing.

and eventually your operating or your gross profit will exceed your operating costs. Because let's be clear, at this point, Tesla was also still losing money once they subtracted 290 million dollars of operating expenses, right? That's your research and development you're selling in general. administrative expenses. The typical expenses.

This is what Rivian has as well. They have about 857 million dollars worth of those operating expenses, but they're not even close to chipping away at those operating expenses because they're so upside down on on their gross profit. They have no gross profit. They have a gross loss.

They have a disgusting gross loss. They're almost losing three dollars per dollar of Revenue that they're sticking into these cars. not including gross profit. that, uh, or not including operating expenses I Should say that's nasty.

If you now add this together here and you say Okay, so we earned 536 million dollars of revenues, but all of our costs were 14.53 Plus or Op X 857 equals in other words, this company brought in 536 million dollars, but spent 2.3 billion dollars. That's spending over four dollars for every dollar of Revenue that's coming in. That folks is quite scary. And it's also scary when you go over here to their cash flow statement because what you could see is their net cash used in operating activities.

No surprise is negative. 3.6 billion dollars more than twice as much as their loss was last year. so it's worsening, not getting better. And then of course, they, uh, you know they spend money investing Capital Expenditures right here.

Capital Expenditures Line: Let it load. and there it is. Capital Capital Expenditures line of over a billion dollars. So here's a company that lost 4.4 billion dollars in the nine months ended September 30th Yikes.

yikes, Those are a lot of losses. Let's now compare it to see if Lucid is doing any better. So in The case of Lucid, we have 2282 Vehicles produced on track for six to seven thousand vehicles of annual production. So to get a similar quarter for Tesla, we're going to compare to the last quarter of 2012.

That would be Uh gosh, At this point that's looking at 10 years ago, we've got 2 400 Vehicles sold 2750 built in the last quarter of 2012.. So roughly similar for Tesla about 10 years ago compared to where Lucid is today. And when we go and look at the financials for Tesla this is now two years before that 2014 math, we were doing. What do we notice over here? Whoa.

Look at this. Tesla's Automotive Sales are actually greater then their cost of revenues even two years earlier. So even two years earlier, they still had a gross profit. Now, it's small, right? It's it's much smaller.

278.7 divided by 294.3 Minus one puts them at a gross profit of about 5.3 percent. So it's super small. and if you take out tax credits for that, you might be closer to zero. But at least they were close to a break.

Even right, where's Lucid around the similar level of production now? Well, let's take a look here's Lucid folks. Lucid Revenue Almost 200 million dollars in Revenue at 195. And what's the cost of Revenue Oh dear lord. Two and a half times their revenue.

In other words, for every two dollars and 52 cents Lucid stuck in the vending machine, they got a dollar out and then they ended up spending another 213 million dollars on research and development and 176 million dollars on SG A. This is bad. These companies are nowhere close to gross profitability and this is a very dangerous path for these companies to be on. This is why Elon Musk is basically begging these companies figure out how to control your costs.

otherwise you're going to go bankrupt. Let's look at the balance sheets for these companies compared to cash flows. When we look at the cash flow for the last nine months for Lucid, we're down 1.57 billion dollars on cash flow. Over the last nine months, they invested another 800 million dollars into plant property and equipment.

That puts their total uh, free cash flow at negative negative 2.361 billion dollars. If we now look for their balance sheet, we can go ahead and see how much time does this company have left before. They either have to get loans or dilute shareholders or should I say more loans uh, or by either raising bonds or taking out loans or getting new Investments which is diluting shareholder is whatever it may be. Well, they've got about 1.2 billion dollars here in cash.

They've got short-term Investments Of about two we've got inventory I Generally don't count, so we're going to go with about 3.2 Kevin Asset style. This is just super fast quick math, right? We're going to look at liabilities that we have here. We've got long-term debt of about two billion dollars financed lease liabilities. I'm not going to take that against them given that I didn't account for uh, inventories.

So we've got two billion dollars of long-term debts already. That's okay. Let's just assume we'll pay for that as part of our interest payoff. We've got about 3.2 billion dollars of Hard Cash that we can spend.

How much time does that give us? if we have a cash burn of three Point: there were 2.36 billion dollars. Well, it gives us probably about a year. That means by September of next year Lucid Either needs to be producing cash flow, which they probably will, or they're going to have to raise more money. Which means the share price is probably going to get hurt or they'll have to prove some form of path profitability that people believe in.

Let's look at Rivian's balance sheet. so we jump on over to Rivian net cash again. In nine months, we burned 3.6 plus one. We're at 4.6 billion dollars of burn.

Great. Now let's go ahead and look at the cash on the asset statement balance sheet. AKA So here we go: current assets: We're sitting at 13.2 billion dollars in cash. That's actually pretty dang nice.

Uh, we're not going to count inventory, plant property, and Equipment accrued liabilities. We'll call that inventory. Uh, write off total liabilities. Looks like we have about long-term 1.2 billion fine, very little debt, 1.2 billion long.

Over here again. we'll call that an interest right off. Fine. but they are burning 4 billion dollars in nine months.

Let's verify that again quickly. We jump on over here 3.6 plus one. It's actually about 4.6 in nine months. All right.

So if we're burning about 4.6 per 9 months, then that's uh, 13.2 divided by 4.6 That gives us 2.87 times nine month periods. So let's multiply that by 9. That gives us about 26 months of life right here. That works out to a little over two years of runway for Rivium before they have to start raising money.

So it looks like even though Rivian is spending a lot more money, they have a lot more cash from their IPO So they were really smart in raising a lot of cash and insulating themselves because they're burning money like freaking crazy like there's absolutely no tomorrow. Both of these companies are on a very bad trajectory with cash flow management. We need to see over the next six months a dramatic turnaround in their operating efficiency and their gross profit margins. That means cut R D, cut SG A and get your freaking gross profit margins in line, because if you can't do that, you're going to end up burning the rest of the cash you have and you will either borrow more until your stock goes to a dollar or you'll have to go bankrupt and somebody else will have to pick up your IP Maybe Ford will pick up the Rivian IP You know, maybe Mercedes will pick up the Lucid IP for pennies on the dollar And there you go.

Bad situation to be in. So is it understandable that these companies have absolutely terrible risk, especially compared to where Tesla was in the early days? Absolutely. This is why Tesla's valued at what it is. They understand production, they understand manufacturing, and they understand profit margin.

You want to invest in businesses that have high pricing power. High Pricing power means High Profit margin and ability to grow and maintain margins. Improve margins and in difficult times, maintain margins. We're going into a recession and these companies are in a terrible position.

I Would be very cautious with these investments just like I Cautioned against Rivien when it was over a hundred and fifty dollars. Just type into YouTube Meet Kevin Rivian. Thanks for watching Goodbye.