The electric vehicle (EV) market is expected to grow at an exponential rate in the coming years. Analysts estimate that by 2030, two out of every three cars sold globally will be an EV. With such drastic growth, a slew of manufacturers have entered the EV race in an attempt to stake their claim.
One of those is start-up Rivian Automotive (RIVN 6.10%). Offering outdoor enthusiasts electric SUVs and trucks, Rivian's initial public offering (IPO) in 2021 was one of the most anticipated of the year and the largest of any American company since Meta Platforms in 2012.
But hype doesn't necessarily mean it deserves a spot in your portfolio. Even though Rivian has become one of the more prominent names in the EV industry, there are a couple of reasons I wouldn't touch the stock.
1. Profits continue to elude the company
The most glaring reason I am not buying Rivian is due to one simple fact: It has yet to turn a profit. While this can be common among new companies, especially in the auto industry, due to high manufacturing costs, I like to focus on owning companies with proven profitable business models.
Advocates for Rivian claim that, eventually, it will turn a profit. But I am not so confident. Yes, the company has made progress in production and deliveries, but the fact is that it is still a long way from generating profits.
In the most recent quarter, Rivian reported a net loss of $1.37 billion and production of 16,304 vehicles. That's not good! Again, I will note that progress has been made. In last year's third quarter, the company reported a loss of $1.72 billion and produced 7,363 vehicles. The company noted on its Nov. 7 conference call with analysts that its gross loss per vehicle had improved about $2,000 from Q2 to Q3.
As a result of a lack of income, the company has seen its cash reserves reduced by nearly 60% in just two years. Thanks to its massive initial public offering (IPO) and fundraising efforts, Rivian held just shy of $20 billion in cash and equivalents in late 2021. Yet today, that number sits at under $8 billion. If something doesn't change and change quickly, Rivian could be looking at the grim reality of a bankruptcy filing.
2. Putting all its eggs in one basket
Another development Rivian bulls often tout as a counter to its lackluster financial performance is the planned "megafactory" slated for construction in Georgia. Once fully constructed in 2030, management believes it will be able to produce around 400,000 vehicles per year, a dramatic increase from the estimated 54,000 in 2023.
I will be the first to acknowledge that a long-term strategy is invaluable to ensure that companies remain competitive. But perhaps Rivian is trying to run before it can even walk. This factory is estimated to cost a whopping $5 billion. For a company that doesn't generate any cash flow, planning that expenditure seems like a risky bet since construction projects of this scale are notoriously prone to delays and missed deadlines, which inevitably means additional costs.
Should Rivian survive this tumultuous period and reach profitability, I will gladly give credit where credit is due and then reconsider adding it to my portfolio. But for now, investors looking for EV exposure should look to other stocks. Rivian holds too much risk for the time being.
