Following the skyrocketing gains of Tesla (TSLA -3.15%) stock, investors have been hungry to find the next electric vehicle (EV) juggernaut, and there's arguably no candidate that's gotten more attention than Rivian (RIVN 4.16%). The company is best known for its electric pickup trucks, and it went public via a high-profile IPO in November 2021.
Rivian share prices crashed in 2022, but a recent partial rebound is giving some bulls new hope. Is the EV stock a buy today? Two Motley Fool contributors offer up the bullish and bearish arguments for this stock.
Image source: Rivian.
The bullish case: Rivian's business is making progress
Howard Smith: It may not be surprising that many early-stage EV companies are struggling and some have even filed for bankruptcy. After all, even Tesla was close to running out of money before it grew sales and production levels sufficiently enough to sustain its operations. Last year, Rivian was on the list of disappointing EV start-ups after it slashed its planned production level in half for the year.
In 2023, things have improved. The company just reported its second-quarter 2023 production and delivery data, and both are ramping up quickly. Rivian delivered 60% more vehicles sequentially than it did in Q1. It is now on track to reach the 50,000-unit target that it had originally hoped to achieve in 2022. Rivian is making strides and it might be time for investors to consider taking even a small position in this long-term growth story because this EV start-up has a secret weapon on its side.
Rivian has an investor and customer in e-commerce giant Amazon (AMZN -0.56%). That relationship could help provide a springboard beyond the 100,000 electric delivery van order that Rivian has already started supplying. Amazon began deploying the electric vans it has received so far in Europe this year, and that could become a key future marketing strategy for Rivian.
Rivian held about $12 billion in cash and equivalents as of March 31 and expects about $2 billion in capital expenditures this year. Much of that will go toward building its second domestic manufacturing facility, which will be located in Georgia. But Rivian has cut back on its spending elsewhere -- including Europe. It tabled plans it originally announced last fall for a joint venture with the Mercedes-Benz Van division of Daimler AG to produce electric vans in Europe.
With more than 300 of its Amazon vans now hitting the roads across Germany, Rivian can effectively enter the European market without spending the previously planned capital. That bodes well for future expansion as it continues to work on ramping up its pickup truck, SUV, and van production at its existing facility. While much could still go wrong, and success is far from guaranteed, investors might want to allocate an appropriate amount to buying Rivian stock now.
It's still a long shot
Jeremy Bowman: Reality seems to finally be hitting EV investors who had hoped to repeat the stock surge seen in Tesla.
Lordstown Motors just filed for bankruptcy, and nearly every other EV start-up is losing money, including Rivian. The company's first-quarter earnings report shows that it's still a long way from profitability. It reported a generally accepted accounting principles (GAAP) net loss of $1.35 billion, a slight improvement from the $1.59 billion it lost in the quarter a year ago. Even gross profit was negative at $535 million on revenue of $661 million, meaning the company is losing a significant sum on each car sold before accounting for overhead costs. It's also burning cash quickly, with a free cash flow loss of $1.8 billion in the quarter.
Rivian is targeting a positive gross profit by the end of 2024, but even if the company hits all its goals, the upside potential seems limited, especially as it's likely to lose money for at least the next few years.
Management set a long-term target of manufacturing 1 million cars by 2030, but the EV industry is getting more competitive every month, and price competition is likely to increase as well, pressuring margins. Already, Tesla and other major players are lowering prices on vehicles, even as Rivian did the opposite. At the moment, the company benefits from early adopters interested in its vehicles because they are still novel, but it will eventually be subject to the grueling competitive and macroeconomic dynamics that traditional automakers now face. Even CEO RJ Scaringe said on the recent earnings call that electrification alone will not be enough to differentiate the company and that it will have to beat its peers on quality and performance.
There's a long list of EV start-ups and legacy carmakers like Ford Motor Company and General Motors vying to do the same. While Rivian stock might look cheap after falling so sharply, the company's market cap is still close to half that of Ford and GM even though its financial situation is much worse.
At this point, everything needs to go right for Rivian to be a winner, and even if it does, the stock's potential seems limited as the EV market gets more crowded.
