Rivian Automotive (RIVN 6.10%) was among the highest-valued U.S. automakers when it went public in 2021. A market cap of over $100 billion put it second only to Tesla, which was valued at around $1 trillion at the time. The problem was that in 2021, Rivian only generated $55 million in revenue and lost $4.2 billion from its operations.
Its outrageous early valuations didn't last long. From its peak in November 2021, the stock began a precipitous and sustained tumble that left it down by more than 93% earlier this year. But now that Rivian's operations are finally beginning to scale up, could it finally be a buy at its current low share price?
Rivian is surviving a tough economy
While the U.S. economy is growing at an impressive rate, macroeconomic conditions remain challenging for the automotive industry. The biggest headwind may be high interest rates, which increase the cost of financing car purchases and make it more expensive for unprofitable companies like Rivian to raise outside capital. That said, the automaker is performing surprisingly well despite these headwinds.
In the third quarter, revenue increased more than 149% year over year to $1.34 billion, based on a similar increase in the number of vehicles sold. And according to CEO RJ Scaringe, strong demand is increasing the average selling price of Rivian's vehicles, which means it has come unscathed so far through the price war that Tesla and its other EV rivals are engaged in. The healthy consumer reception to its offerings could speak to Rivian's unique outdoorsy appeal, as well as its focus on trucks and SUVs, which tend to have high margins and sell particularly well in the U.S.
Over the long term, Rivian plans to broaden its market with new products like the smaller R2S compact SUV, which is expected to launch in 2026 and could have a base sticker price as low as $40,000. For context, Rivian's flagship SUV, the R1S, starts at around $80,000. The company is also working on a cheaper battery structure that could reduce production costs across its lineup in 2024.
Image source: Getty Images.
What about profitability?
Like many growth-oriented companies, Rivian's future will depend on how well it can scale up its operations and generate sustainable profits. The company is moving in the right direction. In the third quarter, its gross loss (the value of car sales minus the cost of producing them) narrowed from $917 million to $477 million. And CFO Claire McDonough expects Rivian to be gross margin profitable by 2024.
Gross profit is a very different metric from operating income because it doesn't account for a raft of overhead expenses such as managerial salaries, advertising, and research. However, achieving a gross profit would still be an important milestone for Rivian because it would help demonstrate the viability of its business model and show a pathway to operational profitability through scale.
Trading at a price-to-sales multiple of 4.3, Rivian's stock is cheap for a fast-growing company with long-term profit potential. Tesla trades for 8.7 times sales, and it only grew its top line by 5% in the most recent quarter. Right now, Rivian stock looks like an excellent bet for investors because of its combination of value and growth potential.
