Rivian (RIVN 6.10%) has been a roller coaster since its initial public offering (IPO) in late 2021. Except it's only been one part of the roller coaster ride: the part where it sharply drops. Rivian has shed roughly 80% of its value since its IPO, but as the company heads into 2024 with some momentum, is the time finally right for investors to jump back in?
Setting the stage
Let's be honest: Unless you're Ferrari -- selling vehicles for roughly $400,000 a pop and making money off your racing brand and selling engines -- making money in the automotive industry isn't easy. That's especially true for young electric vehicle (EV) makers such as Rivian, when the high costs of batteries and new technology cause losses for each vehicle rolling off the production line.
All that said, Rivian has done an excellent job in 2023 of improving operations, and it has a number of factors in its favor heading into 2024, making it an intriguing opportunity for investors.
Exclusive no more
Let's talk about one factor that hasn't received as much attention as maybe it should. Originally Amazon (AMZN 3.43%) and Rivian had an exclusive partnership for the EV maker to build its electric delivery vans for Amazon only. However, after negotiations, that partnership is no longer exclusive, and it opens the door for Rivian to produce more vans for other potential delivery businesses.
As long as Amazon stays committed to its orders (and it appears so far that it is), it'll only take a couple of new customers buying fleets from Rivian to seriously move the needle. Only time will tell if and when that happens, but the simple fact that the door is open for the possibility offers plenty of upside for investors buying into the stock for the long haul.
New batteries
Let's talk about something else that could move the needle for Rivian investors: its new battery packs. Recently its chief financial officer, Claire McDonough, detailed a couple of interesting battery developments.
Rivian is introducing a standard battery pack that lowers the selling price of R1 vehicles from roughly $78,000 down to $70,000, opening up a larger addressable market. But it also teased a new battery that's simpler to manufacture. The simpler battery is expected to remove thousands of dollars of costs from production.
That's perfect timing for a company that has its sights set on becoming gross-profit positive in 2024 and has already made substantial progress in cutting its loss per vehicle. In fact, its gross profit per vehicle improved by $2,000 sequentially in the third quarter.
Better yet, Rivian will begin construction of its Georgia plant in early 2024, which will set the stage to roll out its new R2 vehicles by 2026. Those vehicles are set to sell for roughly $30,000 less than its R1 vehicles, broadening its target market.
Cash crunch
With any young EV company, or any young company in general, there's always investor concern around cash. That's no different with Rivian, which ended 2021 with a large cash pile of just over $18 billion, which declined to $11.6 billion by the end of 2022. By the end of the third quarter, that was just under $8 billion.
The takeaways from that decline in cash are twofold: that the cash burn is still significant, but also that it has slowed. Management is racing to be cash-flow positive so it doesn't have to rely on raising more capital. Management has also reduced its capital expenditure forecast from $2 billion down to $1.1 billion for 2023, so progress is being made.
Is Rivian a buy in 2024?
Rivian is truly making improvements in a lot of areas, including reducing its cash crunch, expanding its options to sell delivery vans, and setting the stage for new vehicles and new battery packs. And it hasn't had to deal with tense labor negotiations because its sole factory is not unionized. Remember that Ford and GM are busy offsetting billions in cost increases from their new United Auto Workers contracts.
What will be crucial for Rivian in 2024 is to prove to investors it can reach its gross profit goals, while still accelerating production even though it may hit a small speed bump in the first half of 2024 while introducing its new battery pack.
If the company can jump that hurdle, continue to accelerate production, and avoid being drawn into price wars (as it has done so far), the stage is set for Rivian to soar in 2024 if it executes its gross profit and production objectives.
