Rivian (RIVN 6.10%) investors have had a rough go of it in the last year and a half.
The stock went public just as the Nasdaq was peaking in November 2021, and the timing was fortuitous for the unproved electric vehicle (EV) maker as it cashed in on a sky-high valuation, raising $12 billion. Following a brief pop in the stock, however, investors have been left holding the bag as shares are now down more than 90% from their earlier peak.
Investors who are hoping Rivian will be the next Tesla (TSLA -1.11%) got mixed results from the company's first-quarter earnings report. While Rivian maintained its production guidance for the year, calling for 50,000 vehicles to be produced, the company continued to burn cash at an incredible pace with a free-cash-flow loss of $1.8 billion.
Thanks to its well-timed IPO, the company has $11.6 billion in cash on its balance sheet, so cash burn isn't an immediate concern. But the numbers also show how far away the company is from profitability. The chart below helps illustrate those challenges.
Image source: The Motley Fool.
As you can see, even as revenue soared off of a small base in the quarter, Rivian's losses widened. Management said it's aiming to generate a gross profit in 2024, but that still implies a wide loss on the bottom line as the company had nearly $1 billion in operating expenses after the gross profit line, and operating expenses will almost certainly increase as it ramps up production.
A question of differentiation
Rivian's valuation topped $150 billion at one point shortly after its IPO as investors seemed to price the stock as if it was the next Tesla.
While Rivian is at a much earlier stage in its life cycle than its larger rival, CEO RJ Scaringe indirectly addressed that belief on the latest earnings call and his comments hold significant implications for the stock.
Here's what he had to say:
In the not-too-distant future, everything will be electric. So being electric alone isn't a sufficient differentiation point. It really ties into the -- ultimately what's the way the product comes together, the interplay between software, the electronics in the vehicle, of course, the dynamic performance of the vehicle, the packaging and the architecture of the vehicle. ... how manufacturable the vehicle is, which ultimately drives the cost structure for what we're building.
Scaringe doesn't think electrification is a meaningful differentiation point for Rivian. In other words, the stock doesn't deserve a premium for being an EV maker. Even as the stock price has come crashing down, Rivian is still valued at $13 billion, which seems to be a reflection of its status as an upstart EV maker -- the company is still massively unprofitable, and it's producing a small fraction of millions of cars that peers like Tesla and Ford make annually.
Scaringe deserves credit for recognizing this and telling investors that electrification will soon be commodified. But it begs the question of whether Rivian can differentiate itself sufficiently through the other factors Scaringe mentions to find success in the EV market and be a winner for investors.
Naturally, Scaringe isn't the only CEO who sees his company this way. Lucid CEO Peter Rawlinson just told investors that he believes his company is producing the best car on the market today, and Tesla CEO Elon Musk has called his company's vehicles the best ever made as well.
Rivian's vehicles may be getting rave reviews, but winning the battle for quality in the EV market will be a dogfight, and that's likely to pressure margins across the industry.
Investors may not have to worry about that yet, but when you factor in that future with the company's current financial hole, it looks like this hyped EV stock is still overvalued.
