Electric car stocks took a beating on March 14 after reports surfaced that Fisker may be closer to preparing for bankruptcy. The news came less than a week after Rivian Automotive (RIVN 6.10%) unveiled its next-generation R2 electric vehicle (EV), as well as its R3 and R3X.
The sell-off has intensified since then. As of market close on March 22, Tesla, Lucid Group, Nio, and Rivian were all down between 31% and 54% year to date.
Fisker's financial woes are a painful reminder that an EV company's success ultimately comes down to its financials. Good products can drive sales, but not always profits if the business model isn't sound.
Rivian plans to begin delivering R2 in the first half of 2026. The company is nowhere near profitable. The hope is that launching a lower-priced model will open the door to the mass market and help drive Rivian's profitability. The base version of the R2 is just $45,000, and $37,500 when factoring in the U.S. clean vehicle tax credit.
The Model 3 was a turning point for Tesla -- helping it reach profitability and become the world's most valuable automaker. Let's find out if the R2 can be the saving grace for Rivian.
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Challenges for 2024 and 2025
2024 could be Rivian's most challenging year yet. For part of the second quarter, Rivian will shut down its consumer and commercial production lines to reduce costs and improve R1's technology. It plans to produce 57,000 vehicles this year, the same as last year. Its order backlog for R1 is shrinking, so it is relying on new orders.
Given the overall sluggish demand for EVs and the challenges of other automakers like Tesla, another concern is that consumers may preorder an R2 for $100 and wait, which could strain R1 demand in 2024 and 2025.
2023 was an impressive year of growth for Rivian. Run rate production as of the fourth quarter of 2023 was over 70,000 vehicles per year. Investors were initially hoping Rivian would build upon that growth. But 2024 and 2025 could see flat or even negative production growth compared to 2023.
No matter how you slice it, the pressure is on R2 and 2026. The product has to deliver. At this rate, Rivian will enter 2026 with a cash position that is a shell of what it once had. Rivian is promising lower costs next year, and is confident it has enough cash, cash equivalents, and short-term investments to fund operations through 2025. But with R2 not coming until the first half of 2026, Rivian may have to tap into the capital markets to raise cash. If the demand is there, equity financing could be a better option if Rivian's stock price is higher. And if Rivian just needs a few months of cash to survive and ultimately be a fantastic growth story, then it should find a way to make it work.
Taking profitability seriously
If executed well, R2 could mark a turning point for Rivian stock. Mass-producing the car as cost-efficiently as possible could help set the stage for an effective R3 and R3X rollout. But Rivian has a history of getting ahead of itself, especially when its manufacturing capacity exceeds its production needs.
Rivian initially intended to have the first line of R2 production roll off from its Georgia factory. In October, it said it planned to host a formal groundbreaking ceremony and begin construction in early 2024. But plans have changed.
Investors are losing patience with Rivian's cash burn, and the company is feeling the heat. Rivian remains committed to the Georgia factory. But for now, it will expand its existing plant in Illinois to 215,000 units per year across its electric delivery van, commercial van, R1T, R1S, and R2. The move will help drive $2.25 billion in cost savings compared to the original forecast.
Balancing long-term aspirations with present business needs
Rivian has done a masterful job establishing its brand and developing excellent products for the commercial and passenger EV markets. However, it has poorly managed its cash and overextended the business.
Rivian's potential means nothing if it can't reach profitability. The good news is that its existing manufacturing capacity is nearly quadruple its forecast 2024 production, so there's really no short-term need to expand in Georgia just yet.
Even if Rivian becomes profitable in 2026, it's unclear if it can stay profitable with the capital requirements for R3, R3X, and eventually, the Georgia plant. It's also unclear what kind of margins Rivian will be able to make on R2. A low-cost vehicle sounds great on paper, but not if Rivian barely makes any money on it or, worse, loses money.
With so much uncertainty, it's understandable why Rivian stock is treading water around an all-time low. Investors interested in the stock should understand that R2 won't automatically solve Rivian's problems and that the company will remain several years away from reaching some level of consistency. Folks with a high risk tolerance and conviction in the company could consider investing in it now. Still, others may want to wait until there's better visibility into the demand for R2 and its profit margins.
