Of the electric vehicle start-ups not named Tesla, perhaps none is more promising than Rivian (RIVN -0.84%)

The EV company best known for its pickup trucks is well capitalized, thanks to a well-timed IPO in November 2021. Even after several quarters of huge losses, Rivian still has $10.2 billion in cash and equivalents on its balance sheet, and the company enjoys the backing of Amazon, which is a major investor in Rivian and has tapped it to produce 100,000 electric delivery vans.

Finally, Rivian has also executed well in the six full quarters it's been a publicly traded company and has mostly succeeded in ramping up production according to its targets. 

That pattern was on display again in the second quarter. Vehicle production reached a new record at 13,992, nearly 50% ahead of its first-quarter performance, and deliveries also set a record at 12,640. The results were strong enough that the company upped its production target for the year from 50,000 to 52,000. It also added a dual motor to the R1 lineup.

On the financial side, the company took a step toward profitability by reducing its gross loss per vehicle delivered by $35,000, and it also raised guidance. 

To be clear, Rivian is still deeply unprofitable. In the second quarter, it reported a negative gross profit of $412 million, ahead of a loss of $704 million in the quarter a year ago. While the company's unit economics are improving, that is still a steep loss before overhead costs like management salaries, technology, and marketing expenses. 

R&D and selling, general, and administrative expenses cost the company another $873 million, and it finished the quarter with a generally accepted accounting principles (GAAP) loss of $1.3 billion, an improvement from a loss of $1.7 billion in the quarter a year ago. An adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $881 million was an improvement from a loss of $1.3 billion in the year-ago quarter.

Rivian also improved its guidance for the year as it now sees an adjusted EBITDA loss of $4.2 billion.

Despite beating estimates on the top and bottom lines, the stock fell on the news, down 9.9%. Investors seemed to feel that better-than-expected results were baked into the stock following a rally in the stock that started in late June.

Red Rivian R1T parked on a gravel road in the mountains.

Image source: Rivian.

The Rivian dilemma

While Rivian is still deeply unprofitable, that is by design. The company is still early in its production ramp-up and hopes to produce 1 million cars annually by 2030. The company also expects its financials to improve as it's targeting a positive gross profit by the end of next year.

Its vehicles have also received rave reviews, but an accurate valuation of the stock is tricky, given its cash burn rate.

Rivian also isn't fortunate enough to be in the position that Tesla was a few years ago. It's a young company, but it's not really a disruptor.

Tesla has proven there's a market for EVs, and Rivian is now looking to take advantage of that, but it's far from the only company as both other new EV companies and legacy automakers are rapidly moving into the category.

General Motors (GM -1.44%), for example, is well ahead of Rivian in EV production, manufacturing 50,000 EVs in the first half of the year and targeting 100,000 electric vehicles in the second half of the year.

Despite those efforts, GM stock trades at a price-to-earnings ratio of just 6, showing that investors are treating it like a dinosaur even as it's made significant progress in EVs and autonomous vehicles through Cruise.

Rivian stock has the opposite problem, as the stock trades at a premium even though the business is still unproven at scale.

The incongruousness between GM's and Rivian's valuations will eventually need to be corrected, and GM could turn out to be the more valuable EV maker of the two. 

Rivian is still burning billions of cash, and its valuation seems to be based on everything going perfectly in the next few years.

While the business still looks to be treding in the right direction, investors should wait for the stock price to come down or the business to approach profitability before investing.