It would be easy to conclude electric vehicle manufacturer Rivian Automotive (RIVN -3.15%) will never be able to turn an actual profit. It's not just losing money: Last year's loss of more than $6.8 billion is a whopping four times greater than its 2022 top line of less than $1.7 billion. In 2022 the company lost on the order of $300,000 for every car it made. Fiscal viability seems far out of reach.

Adding insult to injury, rival Tesla (TSLA 3.91%) is net-profitable, while Nio (NIO 1.04%) is at least selling its EVs for more than its direct costs to manufacture them.

As the old cliché goes, though, past performance doesn't indicate future results. There's hope for Rivian on the (distant) horizon. You just have to read a bit of proverbial fine print to see it.

Rivian is ramping up production, bringing its per-car costs down.

Image source: Rivian Automotive.

Lots of losses

If you know the company at all, then you know Rivian Automotive is still a bit of a start-up, and can be expected to still be in the red.

On the other hand, it is making electrified automobiles at scale now. It manufactured 24,337 of them in 2022, with 10,020 being made last quarter alone. All told, it sold $1.66 billion worth of EVs last year, at a price in the ballpark of $80,000 each.

Problem? The company lost over $280,000 per vehicle it manufactured last year; it lost $3.1 billion just making the things, before factoring in the cost of marketing, administration, research and development, and interest payments on loans. That's still an operational/manufacturing loss of nearly $130,000 per car. As noted, actual profits seem miles out of reach.

Don't give up hope just yet, however. Help -- big help -- is on the way.

Rivian is getting better as it gets bigger

You have to dig into last quarter's letter to shareholders to find it, but it's there. Last year, Rivian Automotive booked an accounting charge of $920 million on the devaluation of inventory and its previously made purchase commitments. These expenses aren't direct manufacturing costs and are considered non-cash charges. Nevertheless, they're expenses added to the company's cost of goods sold.

The thing is, without these charges, Rivian's per-car operating loss would have been pared back to a more encouraging $90,000. Now we're getting somewhere.

Perhaps the real expense thus far worth noting, however, is how the EV maker is handling the ramp-up of the output of its assembly line. There are a lot of people working to get its manufacturing facilities running at full capacity, but that takes time -- they aren't making a lot of cars just yet. The Q4 shareholder letter explains:

Our total cost of goods sold was also negatively impacted by the ramping of our second manufacturing shift. As we produce vehicles at low volumes on production lines designed for higher volumes, we have and will continue to experience negative gross profit driven by labor, depreciation, and overhead costs.

We don't know what that means in terms of an actual number. We do know, however, that Rivian intends to double last year's total production this year, bringing its total output to 50,000 electric vehicles. If that doesn't get the company's total per-car production costs below the typical sales price of around $80,000, it'll help get closer to that mark.

To this end, note how per-car profitability is already improving as per-car production costs are coming down.

Rivian's per-car production costs are falling as the company grows, allowing per-car profits to rise.

Data source: Rivian Automotive. Chart by author.

This improvement of course is mostly a function of scale, more of which is on the way.

A compelling speculation

A pick for everyone's portfolio? No. There's still plenty of risk here, and more extreme volatility is almost a foregone conclusion.

Although it's making forward progress, Rivian won't be turning a net profit this year. And, barring some sort of miracle, it isn't likely to do so next year either. The company concedes in the same letter to shareholders it expects to book big inventory-related charges again in 2023, with gross profits only in the cards beginning in 2024 -- not net profits. It's not exactly a dynamic that's bullishly constructive for a stock. 

With Rivian shares down more than 90% from the post-IPO peak made in late-2021, however, it's also not a stretch to suggest the stock's current price only reflects the complicated and expensive recent past you'd expect to see with a start-up. It doesn't reflect any of the fiscal progress that's in the near-term cards. 

We're already seeing subtle hints of this progress too. In addition to Rivian's improving per-car production costs (as described above), the company's administrative and developmental spending is also under control. It shelled out $3.7 billion for this sort of stuff last year,but that's actually down a bit from 2021's total. Given this, if administrative, marketing, and R&D costs swell as Rivian ramps up its production from, it's not likely they'll grow to the same extent revenue does.

The thing is, the market hasn't quite yet connected any of these dots. That's the crux of your opportunity.

While a myriad of factors have been dragging the stock lower for well over a year now, stocks do eventually reflect where a company is going rather than where it's been. As this EV maker further verifies that it's moving closer to real profits this year and next, the market's prevailing opinion of Rivian has a great shot of shifting from net-bearish to net-bullish. And in this the case the shift in question could be a sweeping -- possibly explosive -- one. See, when investors collectively decide they finally like a story stock such as this one, they often decide so with a sharp, defining pivot. That's how they did it with Tesla back in 2019 anyway, once sustained profitability became part of the valuation equation. 

The only trick is timing. We don't know when the broad market's stance on Rivian Automotive might change. All we know is that this year's impending fiscal progress could be that catalyst at any time. That's why it's a case where risk-tolerant investors may simply need to hold their nose and dive in, knowing we may or may not have made the final low yet.