When it launched its initial public offering (IPO) in 2021, Rivian Automotive (RIVN 3.76%) was one of the most valuable automakers in the world. With a stock price of $78, its market capitalization of over $100 billion dwarfed established brands like Ford Motor and General Motors. But now that shares have fallen back down to Earth ($20 at the time of writing), fundamentals-focused investors can start shopping for a good entry point.
While Rivian faces some near-term macroeconomic challenges in the competitive electric vehicle (EV) market, its well-received trucks and SUVs could eventually generate shareholder value. Let's dig deeper to find out what the next three years could hold for the company.
Looking closer at fourth-quarter deliveries
Like many automakers, Rivian reports quarterly vehicle production and delivery data well ahead of the corresponding earnings report. In Q4, it produced 17,541 vehicles and delivered 13,972. According to CNBC, the market took this news badly because deliveries declined 10% sequentially compared to Q3. But this reaction seems a little unfair given quarter-over-quarter results can be muddied by seasonality and other uncontrolled variables.
On a year-over-year basis, Rivian actually grew deliveries by a whopping 73%. And that is significantly higher than its biggest rival, Tesla, which saw its deliveries increase 38% in the corresponding period.
Right now, the EV industry faces challenges from macroeconomic factors like high interest rates, which make it harder for consumers to get the credit they need for new vehicle purchases. But despite the difficulties, demand for Rivian's vehicles seems to be holding up relatively well. And its growth could accelerate further over the coming years, as the Federal Reserve is expected to loosen its monetary policy in 2024 and beyond.
What about the operational results?
Over the next three years, Rivian must translate its top-line growth into profits, and this may be easier said than done. In the third quarter, the automaker generated a gross loss of $477 million, which means it cost Rivian more to manufacture and deliver its vehicles than it was able to recoup by actually selling them -- even before accounting for operational costs like managerial salaries, research, or advertising.
Image source: Getty Images.
Rivian burns through well over $1 billion quarterly in its operations ($1.4 billion in Q3 alone). And this means it will quickly exhaust the roughly $9.1 billion in cash and equivalents on its balance sheet. The company may turn to debt issuance and equity dilution to obtain cash, which could chip away at shareholder value over the long term.
The good news is that losses are perfectly normal for early-stage companies, and Rivian's rapid growth rate means it should eventually be able to scale into profitability. The company's stock valuation also looks good.
More on the valuation
With a price-to-sales multiple of 5, Rivian stock trades at a sharp discount to Tesla, which trades for 8.7 times sales. The lower price tag helps compensate investors for the smaller company's lack of profitability and its future potential to rely on outside sources of capital to fund its operations.
To me, Rivian looks like it could be a good stock hold. It is shaping up to be an excellent way to bet on the EV opportunity. However, investors may want to wait for more quarters of data before taking a position.
