Rivian Automotive (RIVN +1.25%) entered the stock market in November 2021 with a lot to prove, but the company has yet to live up to the hype. The pure-play electric vehicle (EV) manufacturer, which is focused on developing electric trucks and SUVs, has shed 63% of its value since the beginning of the year, leaving its market capitalization at $34.5 billion today.
The company posted its second-quarter financial results on Aug. 11, which had some good and not so good components. But in light of its ongoing pullback, is now the prime moment to buy Rivian stock? Let's examine the pros and cons of investing in the EV company right now.
Image source: Getty Images.
The pros: Demand is high and production remains on track
Per Allied Market Research, the global EV market is forecast to be worth $824 billion by 2030, translating to a compound annual growth rate (CAGR) of 18.2%. By 2040, BloombergNEF projects that global electric car sales will eclipse 66 million, up from 3 million in 2020. The demand for Rivian's vehicles lines up with these monstrous forecasts -- as of June 30, the company has a net consumer backlog of 98,000 units, and it noted in its earning release that "momentum continues to increase."
NASDAQ: RIVN
Key Data Points
High demand is great to see, but the company still has to deliver on its promises. In Q2, it produced 4,401 vehicles, up 72% year over year, and management also confirmed that it's on track to produce 25,000 cars for the full fiscal year. It'll be important for investors to monitor Rivian's progress in the quarters to follow, but it was surely comforting to see its production goals remain on track despite a wide range of unfavorable economic headwinds. Plus, the company does have $15.5 billion of cash, cash equivalents, and restricted cash on its balance sheet, so it should be well-funded enough to continue ramping up production for the foreseeable future.
The cons: Enormous losses and intense competition
In reference to the EV market, a rising tide won't lift all boats. In other words, investors still need to distinguish between the secular winners and losers. Whether it be other pure-play electric car makers like Tesla and Lucid Group, or traditional automakers like Ford and General Motors, Rivian faces stiff competition from all over. Competition shouldn't be the sole reason investors decide not to invest in the EV stock, but it shouldn't be ignored, either. As more companies enter the playing field, it's harder for a business to become profitable and generate positive cash flow.
In its second-quarter outing alone, Rivian endured a net loss of $1.7 billion, much greater than its $580 million net loss in the same quarter a year ago. Likewise, management alerted investors that the company will likely suffer a wider loss for the full fiscal year than previously expected. Instead of generating an earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $4.75 billion, management revised its forecast to negative $5.45 billion. And despite its robust cash position, the company is swiftly burning through its capital, ending Q2 with free cash flow (FCF) of negative $1.6 billion.
Well, is Rivian stock a buy today?
Rivian is a textbook high-risk, high-reward investment. On one hand, the EV company has potential to help pave the way in a multitrillion-dollar industry. But on the other hand, its monumental losses combined with pressure from many other well-funded businesses are hard to brush aside. There's no guarantee that Rivian will ever generate a positive bottom line, but if it starts to demonstrate a clearer path to profitability moving forward, this stock will likely be trading at much higher levels than it is today. In short, Rivian is reserved for daring investors at the moment, but buying in at today's lows could lead to fortunes down the line.
