The Coming Bankruptcy of Rivian & Lucid | Tesla & Elon Musk.

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

[Music]

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

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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