Rivian (RIVN 6.26%) stock jumped 14% on Oct. 4 after the electric truck, SUV, and van maker posted its latest production numbers. In the third quarter, it produced 7,363 vehicles and delivered 6,584 vehicles. Its production volume hit 14,317 vehicles in the first nine months of 2022, and it also reaffirmed its full-year production target of 25,000 vehicles.

Rivian won't unveil any additional details until its upcoming third-quarter report, but the production update has brought some bulls back to the stock. Rivian is still down about 65% year to date due to rising interest rates and the subsequent exodus from pricier growth stocks. That puts the stock more than 50% below its IPO price of $78 from last November. So should investors give Rivian stock another chance, or does it need to fall further before it's considered a bargain?

Rivian's R1T pickup.

Image source: Rivian.

Rivian's core business

Rivian sells three vehicles: the R1T pickup truck, the R1S SUV, and an electric delivery van (EDV) for Amazon. The e-commerce giant is one of Rivian's top investors, and it previously ordered 100,000 Rivian EDVs to be fully delivered by 2030. Rivian started delivering its R1T pickups shortly before its IPO, and it sent its first batch of EDVs to Amazon this July. However, the first deliveries of its R1S SUVs have been postponed from its planned launch date of mid-2021 to late 2022.

The company currently has an annual production capacity of 150,000 vehicles at its main plant in Illinois. It plans to increase its annual capacity to 200,000 vehicles next year by expanding its Illinois plant, and to eventually increase its annual capacity to 600,000 vehicles after it opens its second plant in Georgia in 2024.

Rivian's main challenges

There's plenty of pent-up demand for Rivian's vehicles. By the end of the second quarter of 2022, Rivian had already received about 98,000 preorders for its R1 vehicles in addition to its initial EDV order from Amazon. However, the ongoing chip shortages and supply chain disruptions have made it difficult to ramp up its production.

That's why Rivian delayed the launch of the R1S and slashed its original production target of 50,000 vehicles in 2022 to 25,000 earlier this year. That's also probably why Ford, another one of its major investors, abandoned its closely watched plans to jointly develop an electric vehicle with Rivian last November.

But last month, Rivian teamed up with Mercedes-Benz to co-develop electric vans through a new joint venture. This latest deal represents a major vote of confidence in Rivian's capabilities and could potentially convince other automakers to sign similar EV partnerships with the company in the future.

Rivian's cash flows and valuations

Rivian has been ramping up its production more successfully than many other fledgling EV makers. Its decision to go public through a traditional IPO -- instead of merging with a SPAC (special purpose acquisition company) and trying to dazzle investors with unrealistic long-term projections -- also might make it a more trustworthy company.

Unfortunately, Rivian still suffers from the same cash flow and valuation issues as many of those SPAC-backed EV makers. Just take a look at how much money Rivian is expected to lose over the next three years:

Estimates by Year

2024

2023

2022

Revenue

$12.19 billion

$6.16 billion

$1.82 billion

Operating income

($4.55 billion)

($5.95 billion)

($6.79 billion)

Operating margin

(37%)

(97%)

(373%)

Net income

($4.89 billion)

($5.98 billion)

($6.68 billion)

Free cash flow

($4.81 billion)

($6.73 billion)

($7.61 billion)

Data source: S&P Global Market Intelligence.

Rivian ended the second quarter of 2022 with $15 billion in cash, equivalents, and restricted cash, so it won't run out of money anytime soon. Its low debt-to-equity ratio of 0.2 also gives it plenty of room to borrow more. Nevertheless, Rivian's ongoing losses will still make it an unappealing investment as long as interest rates keep rising.

With a market cap of about $32 billion, Rivian still doesn't seem cheap at 18 times this year's sales. But if it successfully ramps up its production and meets analysts' expectations for 2023 (which are pegged to estimated deliveries of about 100,000 vehicles), it actually seems reasonably valued at five times next year's sales. By comparison, Tesla currently trades at nine times this year's sales and six times next year's sales.

Rivian is an attractive but speculative bet

Rivian is still a promising bet on the growing EV market. It faces supply chain issues, but it's sticking with its production targets and there's still plenty of unmet demand for its vehicles. Its support from Amazon, Ford, and now Mercedes-Benz also indicates it has more staying power than its comparable industry peers. While volatile and higher risk -- Rivian is worth a look at this steep discount to its IPO price.