Rivian Automotive (RIVN 4.92%) stock has been under pressure since the company went public in November 2021. Part of that pressure isn't even Rivian's fault. After surging to a peak market cap of -- wait for it -- $153.3 billion, there was nowhere for the stock to go but down, given that the company hadn't even begun producing vehicles.

But it didn't take long for Rivian to use the gobs of cash it raised from its initial public offering (IPO) to start cranking vehicles off the assembly line.

Rivian stock may always carry the tainted reputation of a burst bubble. But behind the stock blow-up is a real company producing actual results. And now that Rivian's market cap is a much more reasonable $15 billion, it's easier for the company to grow into a higher valuation as it scales production.

Aside from the incredible speed and range of its R1T electric truck and R1S electric SUV, Rivian's ace in the hole is its cash position. That may pique the interest of value investors once they notice that there's $12 billion in cash, equivalents, and restricted cash left on its balance sheet. It's rare to find a growth stock whose cash position is 80% of its market cap. And on the surface, that cash stockpile alone would make Rivian stock a buy.

Unfortunately, it's more complicated than that. Rivian's cash position is its ace in the hole, but it's misleading. Here's why.

Rivian's manufacturing plant in Normal, Illinois.

Image source: Rivian Automotive.

Burning through cash

Most companies have more debt than cash on the balance sheet. A manageable level of debt can even be healthy. But some capital-intensive businesses, like railroads, airlines, oil and gas companies, and automakers, tend to have a lot more debt than cash.

One of the few automakers with a net cash position is Tesla (TSLA 3.17%). Tesla's net cash position is a relatively new development. And it took years for the company to become consistently profitable and free-cash-flow (FCF) positive. But because it generates more cash than it uses, its operations don't deplete cash from the balance sheet.

Rivian isn't in the same position -- yet. The company is highly unprofitable and burning through cash at a breakneck pace: It used $2.62 billion in net cash in operating activities in 2021, and $5.05 billion in 2022. For 2023, Rivian expects around $2 billion in capital expenditures.

For 2024, as it scales production, it sees cash burn improving by 40% compared to 2023. Rivian said it is confident it can fund its operations with its remaining cash and cash equivalents through 2025. Put another way, it will deplete its existing cash, and then do another capital raise -- if it's not yet FCF-positive so it doesn't have to raise cash. That's a big "if," given how unprofitable the company is today.

Rivian is up-front about its intent to burn through the cash it has on the balance sheet. And for that reason, it isn't a value stock. As it stands today, its business is not sustainable, and management knows it. The companies behind many traditional value stocks are FCF-positive, and have a lot of cash on the balance sheet that they don't need to run the business. But Rivian's current treasure trove of cash is a fleeting feather in its cap.

Weighing the good and the bad

Rivian's short history as a public company has been riddled with extremes. It went public at a lucky time and raised a lot of cash despite being unproven. However, it also got blindsided by a challenging 2022 -- a tough year for all automakers. Going into 2023, Rivian finds itself a year behind its production schedule. It's calling for 2023 production of 50,000 units, a target it had originally set for 2022.

Rivian also appears to have way more manufacturing capacity than it needs; its plant in Normal, Illinois has a capacity of 150,000 units. The extra overhead and fixed costs are accelerating cash burn. If the company can scale production, those fixed costs and overhead won't look so daunting. But until that happens, it's likely spread too thin.

In some ways, it's hard to fault Rivian for getting ahead of itself. The company was and remains flush with cash, and there's pressure to put that cash to work and get vehicles off the assembly line and into customers' hands. It was nearly impossible to thread the needle between the amount of manufacturing capacity it needed and its production goals. In hindsight, it missed the forecast badly, and the stock price took a hit partly because of that cost inefficiency.

However, Rivian's excess manufacturing capacity will make it easier to build the second-generation versions of its R1T pickup truck and the R1S SUV (known as R2 models) without derailing R1 production.

As Rivian works toward making lower-cost versions of its vehicles, it can better compete with Ford Motor (F 0.41%) and General Motors (GM 0.87%) on price. Even now, Rivian's specifications and battery packs remain best in class. And despite all the struggles, it delivered nearly double the number of electric trucks that Ford did in 2022.

Rivian stock is worth the risk

Rivian stock should have never reached the levels it did in 2021. Bruised and battered, the stock is at a far more reasonable valuation today -- which is good for long-term investors who prefer a stock to grow into a valuation, rather than surge to an unrealistic level that the numbers can't support.

Rivian earned $1.66 billion in revenue on just short of 25,000 units produced in 2022. If we double that revenue for 2023, Rivian would bring in about $3.3 billion, giving it a forward price-to-sales ratio under 5. That's not a bargain-bin valuation by any means. But the stock will begin to look attractive if the company sustains its current run rate and charts a path toward profitability.

Despite the stock's downright terrible performance, Rivian is worth a look. No other company is positioned quite the same way in terms of existing products, customer demand, cash, lack of debt, and the freedom from sustaining legacy divisions. Whereas Ford and GM have to balance their electric-vehicle (EV) investments against their internal-combustion-engine lines, Rivian can go all in on its electric pickup, SUV, and delivery van. In this sense, the investment thesis for it is fairly straightforward.

The company has set the stage for positive gross margins in 2024, and said its existing cash can only get through 2025. Investors shouldn't cut Rivian any slack if it fails to reach its production target of 50,000, or if it fails to achieve positive gross margins in 2024. But if it does hit these goals and shows a path toward profitability, the company will have a foundation to build upon in future years.

Investors who have been waiting to buy the stock could keep waiting until Rivian bridges the gap between expectations and reality. But if you have a high risk tolerance, now could be a buying opportunity.

2022 was a brutal and arguably embarrassing year for Rivian. However, the worst could be over for the EV start-up. It's not the time to give up on Rivian. If anything, now could be the time to begin getting excited about its stock.