Like many electric vehicle (EV) stocks, Rivian Automotive (RIVN 6.10%) has not had a great 2025. The stock is down over 53% year to date, which is worse than Tesla's (TSLA -1.11%) more than 24% decline.
The sell-off accelerated after Rivian's fourth-quarter and full-year earnings report. Rivian has been cutting costs, but its capital expenditures are still high, it continues to lose money, and it expects flat production in 2024 compared to 2023. In other words, the growth narrative is gone, and that has some investors wondering if the investment thesis is broken.
Rivian hopes to boost sentiment with the unveiling of its second-generation platform, known as R2, on March 7. Here's what to know about R2, how it could help Rivian, and if it is enough to turn the electric car stock around.
Image source: Getty Images.
Broadening the customer base
In 2023, Rivian has the best-selling EV over $70,000. It's an impressive, but specific milestone. Rivian's strategy has always been to scale production and then produce a lower-priced EV that can target a wider range of customers. R2 is supposed to be that golden ticket.
So far, Rivian has relied heavily on its order backlog. Every vehicle produced has more or less had a willing buyer, so it's been more about fulfilling orders than drumming up demand. That period of Rivian's history is ending.
Rivian addressed this challenge on its most recent earnings call, saying, "Our order bank has notably reduced over time as deliveries more than doubled in 2023 versus 2022, and we have incurred cancellations due to macro and customer factors."
The EV market has lost its momentum
The transition to new sales is coming at a terrible time. The EV market is under pressure and has struggled to take market share from traditional gas-powered vehicles and hybrids. Toyota Motor is cashing in on hybrid demand and is successfully using the model to tap into environmentally conscious consumers who also want a good value.
This week, Tesla stock fell over 7% in response to more price cuts. The price cuts have helped Tesla sustain revenue growth but have taken a sledgehammer to its margins.
Rivian is making the right move to release a lower-priced vehicle, but it will still be on the premium end of the market. What's more, the transition to R2 has been costly -- depleting Rivian's cash position. To quote Rivian CFO Claire McDonough from the Q4 earnings call:
We expect 2024 EBITDA to be negative $2.7 billion as we focus on continuing our go-to-market infrastructure buildout and the development of R2, while also optimizing our cost, driven by the integration of key new engineering technology and design changes, negotiated supplier cost downs, and a more efficient operating expense structure. Recently, we have taken measures to rationalize our capital expenditures due to a greater focus on our core business. Capital expenditures in 2024 are expected to be $1.75 billion, driven by additional investments in our production facilities, next-generation technologies, and the continued buildout of our go-to-market operations. We remain confident that our cash, cash equivalents and short-term investments can fund our operations through 2025.
R2 may be for the long-term benefit of the company. But it's hard to think ultra long-term when the CFO just gave a clear and swiftly approaching deadline for running out of cash.
To make matters worse, Rivian will shut down its consumer and commercial production lines during the second quarter to introduce new cost savings, which will add even more pressure on its short-term performance.
Between Q4 2023 and Q4 2024, Rivian expects to reduce variable cost per unit by 50%, fixed and semi-fixed costs by 35%, and boost non-vehicle revenue by 15% through services, software products, insurance, and other offerings. Progress is being made, but Rivian desperately needs to boost sales, scale production, and reduce its cash burn.
Simplifying the product offering
R2 should resemble the best of what Rivian has learned so far, in terms of cost management and performance. In its Q4 earnings call, Rivian said that R2 will be a single vehicle with a limited number of build and trim combinations that will focus on rollout, supply chain management, and efficiency.
In other words, it sounds like a more expensive version of the Tesla Model 3, which took what Tesla learned from the Model S and Model X and simplified it with an emphasis on making the company profitable. Model 3 was a resounding success and was arguably the single most important turning point in Tesla's history.
Rivian will be competing with other EV offerings from pure-play automakers and legacy companies alike. But ideally, Rivian wants to go after the non-EV market and make a product that is good enough to convince customers to make the switch to electric. To quote Rivian CEO RJ Scaringe on the Q4 earnings call:
We need to recognize only 7% of the market has electrified, meaning, really, we're talking about how do we get the 93% of the market that's not buying an EV to get excited about the product. And R2 -- the layout of the vehicle, the package, the configuration, the technology content, we think creates a really interesting and very unique configuration that we're very bullish in the demand for that product. And of course, recognizing what we've seen in R1 and how strong Rivian has resonated with consumers there, we remain very bullish on the R2 segment and the R2 product itself.
A Model 3 moment
Normally, I think it's a mistake to put too much pressure on a single product or event. But in Rivian's case, the R2 platform really could make or break the company.
Rivian has already ripped off the proverbial bandage in terms of 2024 expectations, with high costs and flat production. Investors who are still interested in the stock are accepting that and are looking ahead to 2025. If R2 successfully boosts demand and the company shows that it is helping lower costs, then Rivian could have an easier time raising capital.
The good news is that Rivian still has $7.86 billion in cash and equivalents on its balance sheet, so it probably won't run out of cash until the second half of 2025 at the earliest.
If Rivian can keep the story alive through the successful launch of the R2, then it could make the difference in getting a lower cost of capital through a lower interest rate or because the stock price goes up and equity financing is cheaper. However, if R2 fails to deliver, then Rivian may become a buyout candidate for a bigger automaker or may need to face the snowball effect of tapping into markets by further diluting its stock (which rarely ends well).
The stakes are high for Rivian. The R2 is its Model 3 moment. The company's comments indicate it isn't trying to overcomplicate the product and is driving home cost management and scaling production. But we'll have to wait until March 7 to get a better idea of the specs, exact price points, and Rivian's full intentions with R2.
