The market has not been kind to Rivian's (RIVN 3.76%) stockholders. Shares in the electric vehicle (EV) maker have lost a whopping 80% of their value as concerns over cash burn and lackluster growth mounted. That said, there could be light at the end of the tunnel. Let's explore what the next five years could look like for this exciting growth stock.
What went wrong for Rivian?
Founded in 2009 and debuting on public markets in 2021, Rivian is an electric vehicle company focusing on the truck, SUV, and crossover segments. The company earned an initial valuation of over $100 billion, netting it roughly $12 billion in cash to fund its expansion. But despite the promising start, Rivian's valuation has since fallen to just $19.5 billion due to operational delays and macroeconomic challenges.
The electric vehicle industry is under pressure from rising interest rates, which hurts consumer spending. Cars are big-ticket items usually purchased with loans, and higher rates make them more expensive. To cope with the softer demand, EV makers have engaged in a price war, putting even more pressure on unprofitable players like Rivian. But while industry challenges have dampened appetite for Rivian's stock, they haven't stopped the company from enjoying massive growth.
Could Rivian turn over a new leaf?
Rivian's second-quarter earnings indicate where it could be heading over the long term. Revenue soared by 208% year over year to $1.12 billion as the automaker increased vehicle deliveries by 59% to 12,640. Rivian's operations are scaling rapidly, and management expects full-year production of 52,000 cars in 2023. This positive growth trend could continue over the next five years and possibly accelerate when macroeconomic conditions ease.
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Rivian can augment growth through more product selection. Right now, it only boasts two cars (the R1T pickup truck and the R1S SUV) and its commercial delivery van. But the company plans to release a new R1X off-road SUV this year, which could appeal to wealthy outdoor enthusiasts.
Management is also hinting toward releasing smaller and more affordable options, which could help Rivian penetrate new markets like Europe, where consumers often prefer more compact options.
What about the bottom line and valuation?
Rivian generated a second-quarter operating loss of $1.29 billion, a sharp improvement from the $1.7 billion lost in the previous-year Q2. And with $11.6 billion in cash and equivalents on its balance sheet, the company can sustain operations without over-relying on debt or equity dilution. Management expects a positive gross margin by the second half of 2024, which could be the first step in eventual net income profitability.
With a price-to-sales (P/S) multiple of 6.42, Rivian's stock trades for a sharp discount to pure-play EV alternative Tesla, which trades for 9.06 times sales. Rivian's low valuation, spectacular growth rate, and pathway to profitability make it likely to reward investors over the next five years.
