Here's What Rivian Needs to Do to Soar in 2024

Rivian Automotive (RIVN 6.10%) stock has been all over the place in the last year -- as low as $11.68 per share and as high as $29.27 per share. However, Rivian currently finds itself closer to the lower end of that range and down over 5% year to date.

Rivian needs to slow down its cash burn, continue its production growth, and chart a path toward profitability. Here's the effect these improvements could have on the growth stock in 2024.

Image source: Getty Images.

Reducing cash burn

Rivian ended 2021 with $18.1 billion in cash, but just $11.6 billion by the end of 2022. As of third-quarter 2023, Rivian has $7.9 billion in cash. So, the cash burn has slowed, but it is still significant.

The good news is that Rivian reduced its gross loss per unit delivered every quarter so far this year. The company said it expects to achieve positive gross profit by the end of 2024.

Rivian is racing against the clock to achieve positive free cash flow so it doesn't have to rely on cash from the balance sheet to grow its business. Even though things are looking better, there's still a good chance $7.9 billion won't be enough, especially given that Rivian put off some of the capital expenditures it was expecting this year. It originally forecasted $2 billion in 2023 capex, but is now guiding for just $1.1 billion.

Rivian can always turn to capital markets to raise more cash. Debt financing isn't ideal in today's high-interest-rate environment. But interest rates could come down by the time Rivian really needs the cash (probably not till 2026). Another scenario is that Rivian's valuation increases, making it more attractive to use equity to raise cash instead of debt.

Either way, Rivian is doing a good job reducing its cash burn, and investors should keep a close eye on Rivian to see if it continues that trend next year. A quarter or two of unexpected cash burn won't make or break the company, because it has time before it may need more cash.

Sustaining production growth

Rivian is still years away from booking a positive net income. Most concerning are its sales, general, and administrative expenses and its stock-based compensation. However, the company produced 16,304 vehicles and delivered 15,564 vehicles in Q3, which is well over 1,000 vehicles per week. Here's a look at how those numbers stack up since Rivian has gone public.

Data source: Rivian.

It's worth mentioning that Rivian doesn't just build R1T electric pickup trucks and R1S electric SUVs. Amazon published an article in October that said it has received at least 10,000 electric delivery vans from Rivian. Exposure to consumers and fleets differentiates Rivian from other electric vehicle companies.

Given the production capacity of its existing plants and planned expansions, Rivian should be able to sustain a 50% or so annual production increase over the medium term. If it hits its goal of 54,000 vehicles produced in 2023 and grows at 50% per year, it will reach 182,250 vehicles by 2026. The company's facility in Illinois can produce 150,000 vehicles and may expand to 200,000 vehicles when needed. In October, Rivian announced plans to move forward on its 400,000-vehicle plant in Georgia, with construction beginning next year.

Needless to say, manufacturing capacity shouldn't be the issue. Rather, the challenges come down to demand, competition from other manufacturers, cost management, and supply chain management.

Investors should be on the lookout for around 81,000 vehicles produced in 2024. That would represent 50% growth from forecasted full-year 2023 numbers.

A path toward profitability

Reducing cash burn and ramping production to reduce the relative effect of fixed costs are essential if Rivian wants to become profitable one day. But reaching a positive bottom line annual number, let alone producing a profitable quarter, seems unreachable in the short term.

What steadfast investors likely want to see, more than anything, is a timeline of when Rivian will reach profitability and what it would take to get there. It's all speculation at this point. But if Rivian could become profitable and free cash flow positive, and produce 400,000 vehicles or more in 2028, I would consider that a success -- especially given all the unknowns that come with medium-term forecasting. Anything before that would be a resounding success.

Such a long and hazy timeline may not appeal to some investors. So the sooner Rivian can make specific profitability goals, the more confidence long-term investors can have in holding the stock through periods of volatility.

Rivian stock is worth the risk

Rivian entered the public markets as an extremely overvalued growth stock. Since its valuation has come down and its fundamentals have improved, it has become much more appealing as a worthwhile long-term investment.

Rivian is still in that stage where it is mostly going up against itself, since it is targeting a rather niche customer base and producing a relatively small number of cars. Even if Rivian gets to 400,000 vehicles in five years, it is still not that much compared to the major automakers -- but it isn't nothing. For context, Tesla produced just over 430,000 vehicles in Q3.

Rivian enters 2024 with a great deal of unknowns. But it's the kind of company that could compound in value if it plays its cards right, updates its medium-term expectations, and hits those expectations to Wall Street's liking. Given all the uncertainty, you should only consider Rivian stock if you are OK with a bumpy ride.