Rivian‘S (RIVN -5.23%) The second quarter could go down as the most important in the company’s history after the electric vehicle (EV) maker unveiled its next-generation vehicle platform and announced a partnership with Volkswagen Group (OTC:VWAGY)However, these important events occurred towards the end of the quarter and did not have a major impact on second quarter results.

Let’s take a look at Rivian’s latest quarterly results and why the company appears ready to turn things around.

Continued cash consumption

Rivian’s second-quarter revenue increased 3% year-over-year to $1.16 billion as the company delivered 13,790 vehicles during the quarter, a 9% increase year-over-year. It produced 9,612 vehicles during the quarter. Production declined both year-over-year and sequentially due to a planned closure of the manufacturing plant for retooling.

The company reiterated its forecast that it would produce 57,000 vehicles this year.

The biggest problem for Rivian was that the company was selling its vehicles at a much lower price than it cost to produce them. This continued in the second quarter, when the company posted a negative gross profit of $451 million. That represents a loss of $32,705 per vehicle in manufacturing costs alone and does not include costs associated with selling the vehicles or corporate or research and development costs. Rivian said the gross loss was negatively impacted by costs of $59 million, or $4,278 per vehicle delivered, that are not included in the company’s long-term structure.

Overall, Rivian reported an operating loss of $1.38 billion. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to minus $860 million.

Given the negative gross margins, it’s not surprising that Rivian continued to burn cash. The company reported operating cash outflows of $754 million in the quarter. Another $283 million was spent on capital expenditures, bringing free cash flow to negative $1.04 billion in the quarter.

The company ended the quarter with $7.87 billion in cash and short-term investments and $5.53 billion in debt.

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Future improvements

While these changes were not reflected in second-quarter results, Rivian took a number of important actions during the quarter to improve both its gross margins and its balance sheet.

Rivian took two key steps to improve gross margins. First, the company retooled its main manufacturing facility in Illinois. Management expects this modernization to improve the manufacturing process, particularly cycle times, factory utilization and costs. Second, the company redesigned the design of its second-generation vehicles to reduce costs. This included moving to a zonal network architecture to significantly reduce the number of electronic control units in the vehicles, reducing vehicle complexity and switching to some lower-cost materials.

Rivian expects these changes to result in modest gross profit in the fourth quarter and full year 2025 as the company looks to reduce material and conversion costs even further. Management expects positive gross profit in 2025, even though the company has decided to halt production for more than a month as it upgrades and integrates new equipment at its Illinois factory ahead of the launch of its R2 vehicles.

In addition to these moves, the company has also reached an agreement to strengthen its balance sheet through an investment and partnership with Volkswagen. The German automaker will initially invest $1 billion in Rivian and plans to invest up to $4 billion more once the joint venture is approved and certain financial and technological milestones are met. Rivian expects the joint venture to help it on the cost front, as Volkswagen’s size helps it get better prices from suppliers.

Buy, sell or keep?

Rivian is on the right track. The redesigned model range and the modernized production facility should lead to sustainably positive gross margins. The company is now being supported by some fairly large companies such as Volkswagen and Amazonits largest shareholder, for whom it manufactures electric delivery vans.

The company has the potential to be a big winner in the electric vehicle space in the long term, but it is still young and any investment at this point is rather speculative.