On Tuesday, Rivian Automotive (RIVN 0.48%) posted a strong second quarter. The electric vehicle (EV) maker accelerated production enough to raise full-year guidance to 52,000 units; it improved its gross margin by 44 percentage points, or 4,400 basis points, compared to the first quarter; lowered costs; narrowed its quarterly loss; and topped Wall Street revenue estimates.

Yet in a mind-boggling surprise, Rivian's stock traded 10% lower Wednesday morning. But despite the head-scratching move in stock price, Rivian remains a no-brainer growth stock. Let's dive in to see why.

Simplifying the equation

The transition from internal combustion engines to the future of electric vehicles is still in the early innings, and while eventually evaluating companies such as Rivian will become more complicated, right now it can be boiled down to three things: reduced costs, increased production, and better pricing.

Starting with the better pricing, one thing that has greatly benefited Rivian to this point is its ability to avoid joining the ongoing EV price war. Tesla began the price war by slashing prices to stoke volume at the cost of margins, and it forced many companies to follow even at a time it crippled some financially.

Take Lucid Group for instance, another EV maker that is in more direct competition with Tesla vehicles -- remember that Rivian's R1S and R1T have less competition in the SUV and truck EV segments. Lucid's second-quarter production and deliveries dropped, due in large part to the price war, forcing management to slash the prices of its Air luxury EV sedans by as much as $12,400.

Rivian, however, boasts an order backlog that should extend deep into 2024 and, without sedans that compete directly with Tesla, it was able to avoid price cuts and that helped fuel a gross profit per vehicle increase of roughly $35,000.

Further, for the first time since production began, Rivian's R1S production outpaced the R1T. The R1S SUV represented roughly 70% of its production, and that matters because management noted that the SUV is currently more profitable than the R1T truck counterpart.

Cost reduction

Management has turned its focus to becoming gross-profit-positive in 2024, and part of that will be driven by its company-wide cost transformation program aimed at reducing the costs of material, manufacturing labor, overhead, and logistics.

Rivian will also benefit from introducing the in-house Enduro motor and lithium iron phosphate (LFP) battery packs, renegotiating supplier pricing and eliminating short-term premiums. All of these cost reduction objectives will be amplified when the company begins producing its next generation R2 platform vehicles that will have a lower cost structure than its R1 platform predecessor.

Ultimately, Rivian's primary lever to drive profitability will be increasing production and deliveries. Assuming demand for its vehicles stays strong, the faster the company can accelerate its production and minimize overhead, the better for investors. After a speed bump in production, and the ensuing production line adjustment, production is back on track.

Graphic showing increase in deliveries.

Data source: Rivian. Chart by author.

The increase in production, as well as full-year production guidance, also enabled management to improve its full-year adjusted guidance for earnings before interest, taxes, depreciation, and amortization (EBITDA) to a loss of $4.2 billion.

Despite the speed bump, through the first half of 2023 Rivian produced over 23,300 vehicles, which was essentially its full-year total in 2022. Management also expressed confidence during the second-quarter conference call it would continue to deliver near production levels in the near term thanks to a healthy backlog of orders.

The bottom line

When investors simplify the equation for Rivian, it becomes a no-brainer growth stock as the company reduced costs, improved profitability, and accelerated production during the second quarter. It has plenty of cash and its modest debt levels don't mature until after the company plans to launch its next generation of R2 platform vehicles.

All that said, investors will absolutely want to keep an eye on demand for Rivian vehicles as Tesla and General Motors release EV trucks into the market in the near term, in addition to Ford Motor's F-150 Lightning gaining traction after recent price cuts.

Rivian has a long road ahead of it, but right now it appears one of the bright spots in the EV industry.