Rivian Automotive (RIVN -2.27%) debuted with a lot of fanfare on the Nasdaq stock exchange last year, with the company raising $13.7 billion in proceeds from its initial public offering (IPO). By the end of November, the electric vehicle (EV) stock was commanding a market capitalization of a whopping $127 billion.
Cut to today, and Rivian's market cap is just about $25.6 billion. The stock has been pummeled this year, and rightly so: Investors have had plenty of concerns, including Rivian's inability to produce its flagship R1T pickup truck at scale.
Rivian's CEO, R.J. Scaringe, is now trying to reassure investors about the company's prospects, as evidenced by his latest letter to them. On June 6, Rivian held its first annual shareholder meeting since going public, and in his letter to shareholders, Scaringe highlighted the four key areas where the company is "hyper-focused" now:
- Ramping up production
- Generating positive margins
- Developing future technologies
- Launching its R2 midsize SUV in 2025
Rivian's plans sound promising, Scaringe sounds confident, and the stock is trading at a fraction of its all-time highs. Could this, then, be the turning point for Rivian, and should you buy the stock now before it's too late? The answer might surprise you.
Rivian's growth plans
Rivian's R1T pickup trucks have received rave reviews so far, and it was even crowned MotorTrend's 2022 Truck of the Year. Rivian also has an SUV, R1S, as well as a commercial delivery van, EDV.
Rivian currently has more than 90,000 preorders between the R1T and R1S, as well as 100,000 EDV orders from e-commerce giant Amazon.
Image source: Rivian.
Scaringe believes the R1T and R1S have helped the company establish a brand and lay the foundation for its next EV -- a midsize SUV called R2. Rivian is, indeed, laser-focused on the R2 -- at the end of March, it had roughly $17 billion in cash, which it now says will help it achieve its goal of launching the R2 by 2025. Rivian believes its Amazon order, meanwhile, should give it a stronger footing in the commercial electric fleet market.
So far, so good.
Can Rivian execute on its plans, and can it really fulfill Scaringe's goal of becoming "one of the largest companies in the world," driving the future of transportation, as it strives to?
That's the million-dollar question. The answer could be yes, but it won't come easy.
The biggest challenge to Rivian's growth
Rivian's problem is a good problem to have: It has demand that it's unable to supply. The caveat, though, is that if Rivian fails to scale up and meet demand, it could lose crucial time and opportunity to competitors.
Right now, Rivian's long-term success depends almost entirely on two things: its ability to ramp up production and its ability to cut costs to make EVs profitably.
From production standpoint, Rivian's factory in Normal, Illinois, is ready with an installed capacity of 150,000 units per year and can produce all its existing vehicles. Rivian, though, expects to produce only 25,000 units this year, because of cost and supply constraints.
And that's Rivian's real problem -- one that I believe it needs to pay greater attention to.
What Rivian needs to do right now
In his letter to investors, Scaringe stressed that battery supply could prove to be the biggest challenge for the EV industry in the coming years. With demand for EVs expected to grow exponentially, global battery production capacity needs to grow equally rapidly. Yet there's already a shortage of key battery raw materials such as lithium, nickel, and cobalt, and prices are skyrocketing.
It's a double whammy for Rivian: There's short supply, and whatever raw materials and EV components it can secure are costly and adding to its losses and cash burn. For perspective, Rivian's net loss in the first quarter almost quadrupled year over year to $1.6 billion, on revenue of only $95 million.
Here's what I believe Rivian should do now before anything else: try to find and fix more sources of raw material and components, whether by partnering with manufacturers and suppliers or even acquiring some. It has the cash, and that cash might be best used helping to tackle current supply headwinds and ramp up production of the R1T, rather than saved for the launch of the R2.
Will Rivian be able to operate its Illinois factory at full capacity, fulfill R1 orders, meet delivery commitments to Amazon, build and start its second plant in Georgia as planned, and launch the R2, all with the $17 billion in cash it has right now? Only time will tell.
Rivian's prospects look good, but the company's road to positive margins looks rocky.
Do Rivian's plans make the growth stock a buy now?
Rivian is a growth stock, so investors may not want to focus as much on profitability right now as on its revenue growth.
Given the strong pre-order book for R1T pickups and Amazon's interest in its EDVs, Rivian has what it takes to become a successful EV maker. Yet the company has to fulfill existing orders to take on more, and 25,000 units this year sounds anything but encouraging. A mounting backlog looks great, but only so long as the company can eventually convert those orders into deliveries and sales. Until Rivian starts doing that, I'd look at a rival EV stock that's firing on all cylinders yet trading at rock-bottom prices.
