When electric vehicle (EV) start-up Rivian Automotive (RIVN -6.26%) went public in November 2021, it fetched a premium valuation and had no problem raising capital. But the company is burning through the cash it raised from its initial public offering at a breakneck pace, so much so that it had to raise more capital.

Rivian stock reached a new all-time low on March 8, and is now down a staggering 92% from its all-time intraday high of $179.47 on Nov. 16 2021. Is now the time to back up the truck on this EV pickup truck maker, or is Rivian stock simply not worth the risk?

Rear-view of a Rivian R1T electric pickup truck driving through water.

Image source: Rivian Automotive.

The same song and dance

Rivian's current predicament reminds me a lot of when Tesla (TSLA -1.78%) went through its "production hell" years from roughly 2017 through 2019. From autonomous driving to overly automating its manufacturing process to the roadster, Model S, Cybertruck, Semi-truck, and more, Tesla simply took on too much while still being unprofitable. With outside funding drying up, the company had a reality check and realized that the only way it could successfully tackle these projects was if it became profitable. And the best way to do that was to make a bunch of Model 3s, scale production, and then use excess free cash flow to reinvest in the business. To its credit, the strategy has worked so far. And Tesla is now the envy of the EV world.

Rivian took a page out of Tesla's playbook. By focusing on the electric pickup truck, SUV, and delivery van market instead of the electric sedan market, Rivian believed it would differentiate itself enough from the competition so that demand wouldn't be an issue. Its mistake wasn't its product mix. Instead, it was overexpanding its manufacturing and running into supply chain disruption at a fragile point during its development. The result was a highly inefficient 2022 where Rivian's operating activities burned through over $5 billion in net cash to produce just shy of 25,000 vehicles.

Rivian's Catch-22

Rivian's manufacturing capacity of 150,000 units is triple its 2023 production target of 50,000 units. The challenge is that the EV company has a high amount of overhead and fixed costs that will become relatively lower as it grows production. But it's a Catch-22 because producing more vehicles at current margins means losing more cash.

The only rational solution is finding a middle ground. The good news for long-term investors is that Rivian is pivoting to prioritize profitability without compromising growth. By improving its cost structure and not shooting for the moon with its 2022 production target, Rivian is confident it can reach positive gross margins by 2024 and have its existing cash last through 2025. It's worth mentioning that Rivian's cash forecast came before the announcement that it was raising an additional $1.3 billion in cash from the sale of convertible notes. Therefore, we should expect Rivian's existing cash to last through at least part of 2026. 

The more Rivian can stretch its current cash position, the less reliant it will be on capital markets to raise money during a high-interest rate environment or dilute existing shareholders with the stock near an all-time low.

Rivian stock is a buy

There is no denying that Rivian overextended itself, making it particularly vulnerable to supply chain disruptions. It's now in a race against the clock to reduce its cash burn rate. And the sheer unprofitability of this company is tough to swallow, even for the capital-intensive auto industry.

As bad as 2022 was for Rivian, the company has more going for it than against it at this point. Rivian has a market cap of around $13 billion and finished 2022 with $12 billion in cash, cash equivalents, and restricted cash on its balance sheet. Throw in the additional $1.3 billion from its recent offering, and Rivian's cash position now exceeds its market cap. Even though all of that cash is expected to be gone in the coming years, it's still a lot of capital to put to work for a company valued at $13 billion with no debt.

Most importantly, Rivian has three very impressive products that are in a league of their own when it comes to specifications. And because Rivian doesn't have the burden of a high debt load or existing legacy internal combustion engine business units, it can go full throttle on its electric pickup, SUV, and delivery van.

A key point from the Q4 earnings call is that Rivian's excess manufacturing capacity will leave room to produce first-generation electric pickups and SUVs (R1T and R1S) while concurrently making second-generation models (R2T and R2S). This is a significant advantage over competitors that must choose between one product or another due to limited space on the production line.

Rivian is at a tipping point. If it deploys its capital well and shows a path toward profitability, the stock will look like a steal in hindsight. But if it faces unforeseen headwinds, misses its production target, or simply burns through cash quicker than expected, then it could be on track to become yet another failed U.S. automaker. Given the stock sell-off, the cash available, and the strength of Rivian's product line and brand, there's never been a better time to buy the growth stock. But it's still not a good idea to go all-in on Rivian given the risks discussed and the existential threat the company never reaches consistent profitability.