Rivian Automotive: Is This EV Start-Up Worth Your Investment?
Investing in stocks can change your financial future. For instance, if you had invested $10,000 in electric vehicle (EV) leader Tesla back in 2014, that investment would now be valued at a staggering $245,300. This represents a return of over 2,430% in just ten years. Could Rivian Automotive (NASDAQ: RIVN) be your next big investment? Let’s examine the pros and cons of this EV newcomer to see if it holds long-term potential.
From Hype to Reality
Rivian was riding high when it went public through an initial public offering (IPO) in 2021. This was a different landscape for the EV industry, as Tesla had just started making profits, proving the viability of electric technology. Rivian’s high-end trucks and EVs seemed poised to fill a gap in the market.
Starting with a market valuation over $100 billion, Rivian became the second-most-valuable automaker in the U.S., trailing only Tesla — outpacing traditional giants like Ford Motor Company and General Motors. In hindsight, this valuation appears questionable. As growth stalled, competitors began showcasing popular models like the F-150 Lightning, Silverado EV, and Cybertruck, capturing Rivian’s market niche.
In the third quarter, Rivian saw an 18% year-over-year revenue decline to $874 million, driven by lower production and delivery numbers. It should be noted that the EV market has become increasingly competitive since Rivian’s IPO. Additionally, challenges like inflation and high interest rates likely dampen consumer demand for premium vehicles.
However, Rivian’s struggles become more pronounced when compared to a rival like the Tesla Cybertruck, which has sold an impressive 28,240 units this year, far ahead of Rivian’s R1T with only 10,387 units sold. This is notable, especially since the Cybertruck starts at $82,235, while Rivian’s R1T begins at $71,700.
Adding to Rivian’s troubles, the company lost an average of $39,130 on each vehicle sold—up from $30,448 the previous year. Currently, it faces a gross margin of negative 45%, indicating that manufacturing and delivering cars costs more than what the company can recover through sales.
CEO Ryan Scaringe has a plan to turn things around. He asserts that Rivian is on track for gross profitability in the fourth quarter by focusing on revenue per unit and variable costs. Achievements like selling regulatory credits, improving material costs, and unlocking manufacturing efficiencies are all part of his strategy. Still, Rivian’s fundamental issues related to stiff competition and weak growth persist.
Can Rivian Recover?
Image source: Getty Images.
Rivian has several strategies to improve its situation. First and foremost, securing necessary funding is essential for sustainability. To assist with this, the company has teamed up with industry leader Volkswagen Group to create a $5.8 billion joint venture aimed at developing EV software and architectures. This partnership provides Rivian with essential financial support while allowing Volkswagen to access advanced technology.
Though this partnership makes sense in the short term, it’s concerning for Rivian to grant part of its economic advantage to a potential competitor. Volkswagen models are expected to adopt Rivian’s architecture by 2027.
Despite these challenges, there is reason to be cautiously hopeful about Rivian. Currently, it may not be a life-changing stock pick, but the company produces high-quality products that have garnered numerous awards for safety and customer satisfaction. In the long run, consumer interest may increase. While it’s premature to invest in Rivian stock, keeping it on your watchlist could be Wise.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Volkswagen AG. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
