Biden Tosses Rivian a $6 Billion Lifeline

The company is losing $107,043 per EV sale, and taxpayers could end up paying

WSJ editorial. 

"In this unfortunate era of industrial policy, it’s good to be a politically favored company no matter your commercial prospects. Consider the Biden Energy Department’s stunning $6 billion loan to struggling Rivian Automotive to make electric vehicles.

We had fun calling Rivian a “government unicorn” three years ago when it went public and surged to a fantastic $120 billion market valuation. Rivian at the time had sold a mere 156 vehicles despite being in business for 12 years. Its shares are now worth $11.8 billion.

Investors may have been betting on government subsidies supercharging Rivian’s growth, and they can’t blame the Biden Administration for not delivering. The Inflation Reduction Act includes a $7,500 tax credit per vehicle for EV buyers, plus a $40,000 credit for commercial EVs. The latter is a particular boon for Amazon, that corporate pauper, which owns shares representing 14.8% of Rivian’s voting power and has agreed to buy up to 100,000 of its delivery vans. The IRA also includes hefty subsidies for domestic battery production.

Despite these giant subsidies, Rivian lost about $4 billion on the 37,396 vehicles it has sold during the first nine months of this year. That’s $107,043 a vehicle. Ford loses only about $51,000 on each EV sold.

But unlike traditional auto makers, Rivian can’t use profits from gas-powered cars to subsidize EVs. Thus the company is rapidly burning through cash. It has suffered repeated assembly disruptions and had to recall vehicles to fix defects. It has $1.25 billion in debt due in 2026, so its current spending pace is problematic.

Enter the Biden DOE, which on Monday awarded Rivian the $6 billion loan to build a factory in Georgia with the capacity to make 400,000 SUVs and crossovers. This follows Illinois Gov. J.B. Pritzker’s pledge this spring of $827 million in state “incentives” for Rivian to expand production at an Illinois plant to 215,000 vehicles a year.

They believe in an EV field of dreams. But even if Rivian scales up and builds all these EVs, there’s no guarantee someone will buy them. Rivian’s sales fell in the last quarter, which it attributed in part to a “more challenging consumer environment.” It’s right about that. Traditional auto makers are having to slash prices to sell EVs to meet government mandates.

Rivian warns in its latest earnings statement that industry competition will intensify owing to government subsidies, new entrants, auto-maker discounts and a “regulatory push for alternative fuel vehicles.” Stellantis CEO Carlos Tavares says the industry is experiencing a “Darwinian period” in which only the financially fittest will survive.

Even Rivian seems to harbor doubts about its future. It warns that current and potential competitors have “significantly greater financial, technical, manufacturing, marketing, or other resources.”

The DOE loan program is supposed to help promising startups. But the Biden team is financing a struggling company with a known credit risk that is competing in a well-developed auto industry. Rivian’s debt maturing in 2026 carries an effective interest rate of 12%, but DOE is lending to it at the Treasury rate.

DOE says the loan is a “conditional commitment” that hinges on Rivian meeting “technical, legal, environmental, and financial conditions.” That means the Trump team may have the power to scrap it. GOP Georgia Gov. Brian Kemp has promoted Rivian’s planned factory in his state, but the loan will mainly benefit the company’s investors, especially Amazon.

The Rivian loan is an attempt to keep the company afloat at enormous taxpayer risk before the Trump Administration takes office. But if the loan goes bad in the next four years, don’t expect Biden officials to accept responsibility. They’ll blame the Trump crowd.

Energy secretary-designate Chris Wright has a big job ahead, and that includes cleaning up a Biden portfolio of corporate-welfare loans handed out for political reasons, not based on market principles or prospects."