When electric vehicle (EV) maker Rivian Automotive (RIVN 2.44%) went public in late 2021, investors couldn't resist its compelling growth story. It had financial backing and electric delivery truck orders from Amazon and a sharply designed electric pickup truck and SUV for consumers.
Rivian shares soared after its successful initial public offering (IPO) that also raised about $12 billion for the company. But instead of following in the footsteps of EV leader Tesla as investors hoped, Rivian stock crashed in 2022. The realities of starting up an EV manufacturing company, along with economic headwinds, resulted in the stock now being near all-time lows of 79% below its IPO price.
There is a promising reason for investors to look at taking advantage of that drop, but also a red flag to watch in 2023.
Good sign: Rising backlog
Rivian came up slightly short on its goal to produce 25,000 electric vehicles in 2022. That goal was originally 50,000, however, so even making that lowered projection couldn't be looked at as a huge success.
But the pace of production is growing quickly, with fourth-quarter production exceeding 10,000 units. Seeing that production volume continue to grow is a key factor for Rivian investors in 2023.
However, as the company has struggled to boost production, it has seen its backlog of reservations continue to increase. That has been, and could continue to be, a good sign for Rivian. Notably, Rivian's preorders for its consumer pickup truck and SUV models are increasing when fellow EV start-up Lucid Group is seeing a decline.
Data source: Rivian Automotive. Chart by author.
Those preorders could be canceled, but the data provided is net of cancellations. So it's clear that even with an average selling price of over $80,000 per vehicle in the third quarter, demand is growing for Rivian's R1 platform consumer trucks. Its preorder backlog also doesn't include the 100,000 commercial delivery van order from Amazon that Rivian expects to fill over the coming years.
Red flag: Sinking cash pile
While that all sounds like good news for Rivian investors, production and sales growth have to happen quickly. Rivian is burning cash at a rapid rate, and it needs to get to cash flow positive before it runs out. The company's balance of cash and cash equivalents dropped by nearly $5 billion over the last year.
Data source: Rivian Automotive. Chart by author.
Rivian's management is already taking action to conserve cash. It lowered its capital expenditure spending by pushing some growth investments back and by suspending others. Last month, it announced it was pausing plans for a strategic partnership with Mercedes-Benz to build commercial vans in Europe.
The company says it has enough cash on hand to fund operations through 2025. A big chunk of spending is for its plans to build a second manufacturing facility. That Georgia plant is expected to cost $5 billion. It is scheduled to begin operations in 2026 with the launch of Rivian's R2 platform.
Rivian's cash position and progress toward generating positive cash flow is the biggest red flag for investors to watch for in 2023. Good news on that front will only come if it also continues to successfully execute its production ramp-up and customer preorders keep increasing. Until then, Rivian remains a speculative investment that would only belong in the aggressive part of a portfolio.
