Rivian Is Cutting Jobs Right After Launching the R2. Is the Profitability Story Getting Stronger or Weaker?

Rivian Automotive (NASDAQ: RIVN) has spent years getting investors excited about its cheaper vehicle. That vehicle, the R2 SUV, finally started reaching customers this month. One week later, the company cut jobs.

The layoffs hit less than 2% of Rivian's workforce, landing on the sales and marketing side of the business rather than the factory floor.

"We recently restructured a handful of teams within Rivian as we work to profitably scale our business," the company said in a statement.

Shares had slipped 4.5% on the news, leaving the company worth around $20 billion and still down for the year despite a strong run into the R2's launch.

But are these job cuts bad news or something else?

Image source: The Motley Fool.

The cuts are small and targeted

Measured against the 17,000 employees CEO RJ Scaringe recently said Rivian has, less than 2% works out to about 300 jobs, concentrated in one corner of the company. And those cuts sit alongside a much larger hiring push recently -- headcount has climbed from about 15,200 at the end of last year, driven mostly by the R2 ramp and Rivian's self-driving program. So, this looks less like a retreat than a reshuffle, pulling money away from customer-facing roles and toward building cars and software.

Still, trimming sales and marketing staff in the same week you launch your highest-volume vehicle yet is an unusual sequence. It points to a company under pressure to spend less while ramping its most important product.

What the layoffs don't fix

The deeper problem isn't the size of the marketing team. It's the cost of building each vehicle.

Rivian posted $119 million in consolidated gross profit in the first quarter. But nearly all of it came from software and services tied to a joint venture with Volkswagen. Strip that out, and the core vehicle business lost about an average of $6,000 per vehicle delivered, before counting overhead and research. A year earlier, that same segment turned a gross profit. The swing came largely from regulatory credits (the clean-vehicle credits Rivian sells to other automakers), which shrank by $100 million and had been propping up the segment.

The R2 is meant to close that gap. Its parts are expected to cost about half what they do on the pricier R1 line, and Rivian is targeting positive automotive gross profit by the end of 2026 as R2 volumes build. But the early months of a launch are the most expensive.

"[W]e expect the complexity of a new vehicle launch will negatively impact our Automotive gross profit in the second and third quarters before becoming a benefit for our overall operations in the fourth quarter as we ramp production and deliveries," said chief financial officer Claire McDonough during the company's first-quarter earnings call.

At the same time, Rivian is spending more than ever on autonomous driving -- now its largest research area -- as part of a robotaxi partnership with Uber Technologies. That spending is why the company pushed back its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profitability target in March, one it had previously set for 2027. So even as Rivian cuts customer-facing jobs to guard near-term margins, it's widening a bet that won't pay off for years.

So, are these job cuts bad news? Not necessarily. But it's not necessarily good news either. Instead, it's more of a byproduct of the company's evolution. Ultimately, Rivian has billions in cash to fund the ramp, and a sliver of sales staff won't decide whether the R2 turns profitable. What will determine its profitability over the long haul is the success of its vehicles and the economics of its business. And we'll look for signals on both of these themes in the back half of the year, when we'll see whether R2 deliveries help Rivian's total deliveries climb toward the 62,000 to 67,000 vehicles Rivian has guided for, and whether the per-vehicle loss starts narrowing.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool has a disclosure policy.