The stock of Rivian Automotive (RIVN -2.94%) has soared 30% in the past month, but shares are still off 87% from all-time highs. The fast-growing electric vehicle (EV) start-up has gone through a brutal drawdown since its initial public offering in late 2021, with investors concerned about a lack of profitability and a crowded EV sector.

A look under the hood (financially speaking) shows that Rivian continues to scale its operations and is getting closer to breakeven. With shares down in the dumps, does that mean Rivian stock is set to make a comeback in 2024? Let's investigate.

Scaling-up production, winning large commercial customers

Rivian has attacked the EV sector from a different angle than leader Tesla. It is starting out by producing larger vehicles such as pick-up trucks, SUVs, and commercial vans.

Its R1T premium pick-up has been a hit with wealthier customers across the United States, with the SUV called the R1S set to begin deliveries to customers sometime within the next few quarters.

From the fourth quarter of 2021 to the third quarter of 2023 -- less than two years -- Rivian has grown its quarterly vehicle production from 1,000 to 16,300. In 2023, it expects to produce 54,000 EVs, which would already make it one of the largest EV makers in the United States. It still has a long way to go to catch Tesla, which is producing over 1 million EVs every year.

One benefit for Rivian compared to other EV start-ups is its commercial business. It has a huge contract with Amazon for 100,000 delivery vans. Other companies want to get in on the action, with AT&T recently announcing a deal with Rivian.

All together, it looks like Rivian has multiple years of runway ahead to grow its EV operations.

Does it have enough cash to survive?

The looming problem with Rivian is that it is still too sub-scale to generate positive cash flow. Building out an automotive manufacturing business is extremely capital intensive and requires massive scale in order to make the unit economics work.

For reference, Rivian is still generating negative gross margins, although they have been moving rapidly in the right direction for the last few quarters.

Over the last 12 months, Rivian has burned $6.2 billion in free cash flow. The company ended the third quarter with just over $9 billion in cash and equivalents on its balance sheet.

It's not hard to run the math on this one: The company has about a year and a half at its current burn rate before its coffers are empty. This paints a bleak picture for the business.

However, when scaling up car manufacturing, it always looks dark before the operating leverage starts to kick in. Once Tesla scaled its business to much greater heights in the 2018-2020 period, it went from burning close to $5 billion in free cash flow to positive cash generation in one to two years.

If Rivian can keep scaling its operations and start delivering hundreds of thousands of vehicles to its individual and commercial customers, the company will likely survive through this dark period.

RIVN Free Cash Flow Chart

RIVN free cash flow data by YCharts.

Avoid all EV stocks, not just Rivian

Even if Rivian has some light at the end of the tunnel, the EV sector looks like a poor place for investors to put their money. It is capital-intensive, has a ton of competitors, and is a classic candidate for following capital cycle theory, which has a whole book dedicated to it.

The idea can be summed up as profits (and therefore investor returns) getting depressed when a flood of competition and dollars flow into a sector ahead of customer demand. This sounds like the EV sector in 2023.

Despite the hype around the electrification of the automotive sector, the industry has put up poor investing performance for decades. Finding the right sectors to invest in might be more important than finding individual companies to put your money toward. Investors would be wise to avoid the EV sector and buy some blue chip stocks with high returns on invested capital instead.