Electric vehicles (EVs) are expected to account for two-thirds of global auto sales by 2030. With such significant growth, manufacturers are competing to stake their claim and grab market share.
One of these hopeful competitors is Rivian Automotive (NASDAQ: RIVN), an up-and-coming start-up looking to fill a missing gap in the EV market with its SUVs and trucks. But if you are looking for a boost to your portfolio, this might not be the stock for you.
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Cash continues to bleed, with nonexistent profits
Every EV manufacturer faces several challenges. Even the best companies face sourcing materials, refining supply chains, and scaling production. But there is one glaring obstacle preventing Rivian from rising to the top: a lack of profits.
As of the most recent earnings report, Rivian loses around $33,000 per vehicle it sells. Even as revenue sits at an all-time high, Rivian's expenses continue to grow at a higher rate. But this isn't anything new. Rivian has never turned a profit, let alone broke even.
While losses have narrowed significantly compared to when it lost almost $140,000 per vehicle in Q3 2022, management still expects to lreport a $4 billion in 2023 when it releases earnings on February 21st. As a result, Rivian's reserves are evaporating at an alarming pace.
Over the last two years, Rivian has seen its cash and equivalents tumble from nearly $20 billion to just under $8 billion. That's a 60% reduction in just two years. If something doesn't change quickly, Rivian only has enough cash to last another two to three years at its current pace.
Often, investors assume that just because a company is in a high-growth industry like EVs, it's worthy of a spot in portfolios. This couldn't be further from the truth. If anything, being in a high-growth industry means investors should be even more selective and focus on companies with proven business models. Since these industries are crowded with hopeful competitors, only the strong will survive.
Simply put, Rivian's financial woes make it an extremely risky stock to own. For investors targeting the promise of more guaranteed gains, minimizing risk, and don't have the time to wait and see if Rivian turns things around, focusing on proven EV leaders like Tesla or BYD would be prudent.
The case for a potential Rivian underdog story
While its financial struggles are glaring, it might be too soon to count Rivian out over the long haul. In 2023, Rivian manufactured more than 54,000 vehicles, by far its best year ever and a sign that it might just be getting the hang of mass production. If it can get a handle on expenses, then continued growth in production could help it finally turn a profit.
Furthermore, a handful of potential catalysts are forming down the road. Scheduled to break ground this year, Rivian plans to construct a massive 1,800-acre factory in Georgia. Phase one is expected to finish in 2026 and increase production by 200,000 units. Upon completion in 2030, Rivian expects the factory to pump out 400,000 vehicles.
The new factory will also be where the new R2 vehicle is manufactured. Set to be unveiled in early March and production to begin in 2026, the R2 will be Rivian's first vehicle priced lower than $60,000. As consumers spend less on cars due to higher interest rates, the R2 could help Rivian tap into new markets.
Last but not least is Rivian's revamped battery pack. At the Global Automotive and Mobility Tech Conference, Rivian CFO Claire McDonough announced that the new simplified, more capable battery pack will "take thousands of dollars of costs out [and] is much easier to manufacture and build as well." At this point, anything that can get Rivian a little closer to turning a profit is considered a victory.
The final verdict
While some investors may want to reduce risk as they approach retirement or prepare for other financial endeavors, others are just starting their investment journey and can afford to take on more risk in hopes of higher gains. For those of you who fit these criteria, maybe, just maybe, Rivian is worth buying.
However, keep in mind that there is no promise that Rivian will make it. And if it does climb out of this hole, it will be a long, winding road. Manufacturing EVs is an intensive process, making quick turnarounds much harder.
But for investors with a bit of patience, an appetite for risk, and confidence that Rivian has what it takes, perhaps it's worth buying today. If you do, proceed cautiously.
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RJ Fulton has positions in Tesla. The Motley Fool has positions in and recommends BYD and Tesla. The Motley Fool has a disclosure policy.
