Rivian Automotive's (RIVN 3.76%) stock price dropped 10% on Jan. 2 after the electric vehicle maker posted its latest production numbers. For the fourth quarter of 2023, it produced 17,541 vehicles and delivered 13,972 vehicles.
For the full year, it produced 57,232 vehicles and delivered 50,122 vehicles. That surpassed its latest full-year production target of 54,000 vehicles, but investors won't know the other finer details until it posts its full earnings report on Feb. 21.
Image source: Rivian.
Rivian's production numbers seem stable, but its fourth-quarter deliveries narrowly missed the consensus forecast for 14,111 deliveries. Its full-year production also came in below its own rumored target of 62,000 vehicles, which it claims was taken out of context and leaked from an internal meeting. So should investors still buy Rivian's stock -- which remains more than 70% below its initial public offering (IPO) price -- as the bulls look the other way?
Why did the bulls rush for the exits?
Rivian currently produces three types of EVs: the R1T pickup truck, the R1S SUV, and an electric delivery van (EDV) for its top investor, Amazon. It's committed to delivering 100,000 EDVs to Amazon by the end of the decade.
Rivian gained a lot of attention when it went public in November 2021 because it was already ramping up its production, it was backed by Amazon and Ford Motor Company, and the bulls were aggressively bidding growth and meme stocks to astronomical valuations. At its all-time high of $172.01 on Nov. 16, 2021, Rivian's enterprise value reached $151 billion -- a whopping 91 times the revenue it would actually generate in 2022.
Those bubbly valuations set Rivian up for a steep drop when it started missing its own production targets. In 2021, it produced 1,015 vehicles. In 2022, it produced 24,337 vehicles, but that was less than half of its original goal of 50,000 vehicles. It blamed that slowdown on supply chain constraints across the EV market, but the bulls lost patience in Rivian as rising interest rates compressed its valuations and cast a harsh light on its steep losses.
At the end of 2022, Rivian set a goal of producing 50,000 vehicles in 2023 -- and it gradually raised that target to 54,000 throughout the year. Its near-term outlook brightened as the supply chain situation improved and it ramped up the production of its in-house Enduro drive unit to curb its dependence on third-party components.
Unfortunately, a series of safety-related recalls, debt offerings, and layoffs indicated Rivian was still struggling to maintain a sustainable business model. That's why Ford had liquidated most of its stake in Rivian by early 2023, and why the bulls still haven't been eager to rush back to its beaten-down stock in this volatile market.
Can Rivian expand without breaking the bank?
For 2023, analysts expect Rivian's revenue to rise 165% to $4.39 billion as it narrows its net loss from $6.75 billion to $5.37 billion. For 2024, analysts expect Rivian's revenue to grow 42% to $6.26 billion as it narrows its net loss again to $4.34 billion.
Based on those estimates, Rivian's stock might seem cheap at 3 times this year's sales. By comparison, the market leader Tesla -- which is a lot larger but growing at a much slower rate -- trades at 8 times this year's sales. Yet there's a key difference: Tesla is firmly profitable, but there's no guarantee Rivian will ever break even.
Rivian ended the third quarter of 2023 with $9.13 billion in cash, cash equivalents, and short-term investments. Including its revolving credit facility, it had a total liquidity of $10.25 billion -- so it won't go bankrupt anytime soon. It had $5.9 billion in total liabilities at the end of the quarter, which gave it a fairly manageable debt-to-equity ratio of 0.6. Tesla ended its latest quarter with a debt-to-equity ratio of 0.7.
But in mid-November, Rivian announced plans to borrow as much as $15 billion to fund the construction of its second manufacturing plant in Georgia. Therefore, Rivian's leverage will probably rise significantly throughout 2024.
On the bright side, Rivian's gross margin has been improving as it ramps up the production of its Enduro drive units. It ended the third quarter of 2023 with a negative gross margin of 36%, compared to negative 171% a year earlier. It still has a long way to go before it achieves break-even gross margin, but the planned opening of its Georgia plant -- which will roughly triple its annual production capacity to 600,000 vehicles -- should dilute its production costs over the long term.
Is Rivian the right EV stock buy for 2024?
Rivian is in better shape than a lot of the smaller EV makers, but its stock should remain under pressure until it meaningfully ramps up its production, stabilizes its gross margin, and narrows its net losses. I believe Rivian could still be a good long-term investment, but I'd rather wait to see its full earnings report in February before buying the stock.
