The electric vehicle (EV) revolution is happening in front of our eyes. The market is expected to grow by 27% globally in 2024 after putting up 29% growth in 2023 to 13.7 million units. EVs are growing much faster than the entire automotive market and gaining share versus gasoline engine vehicles. In China, EV penetration is expected to hit 40% this year. A decade ago, the EV market was almost nonexistent globally.
Many companies are fighting to win the EV wars, from leaders like Tesla and BYD to legacy players like Volkswagen and Ford. But there is another upstart that stormed onto the scene in 2021: Rivian Automotive (RIVN 6.10%). The EV maker is now one of the larger sellers of battery-powered vehicles in the United States, and it just made a major announcement with some upcoming products.
Here's what investors need to know about EV stock Rivian and what this news may mean for shareholders.
Cheaper SUVs are coming
Rivian began its journey with two products. First, it came out with a premium EV pickup truck called the R1T, which can sell for close to $100,000. This product will always have a niche audience given its price point, but it's done well with initial sales as it looked to enter the market at a different angle than leader Tesla, which focuses on sedans and crossover SUVs. Second, Rivian built electric commercial vans, signing a 100,000-vehicle deal with Amazon that will take years to fulfill. It used to have an exclusive agreement with Amazon, but that has ended, and it now sells commercial vans to other customers.
Now, the company is working to broaden its product suite. Its second product for individual customers is the R1S SUV, which is another premium offering with close to 400 miles in range and offroad capabilities similar to a jeep. Last quarter, Rivian announced that the R1S was the top-selling EV priced over $70,000, which shows that the brand is resonating with wealthier customers.
Going forward, Rivian hopes to broaden its appeal with more affordable products. Earlier this month, the company unveiled the R2 SUV, which will be priced at $45,000 and go into production in 2026. After that, it is coming out with an even cheaper R3 product line to hopefully drive even more unit sales. It will still sell the pricier R1T and R1S products, of course, but these announcements show Rivian's ambitions to move into mass-market EV production this decade.
One thing matters above all else: Deliveries
Management brags about the success of the R1T and R1S, but Rivian is still highly unprofitable. Over the last 12 months, the company has burned close to $6 billion in free cash flow as it ramps production and builds out the necessary fixed cost base needed to manufacture cars. This means it needs to grow its deliveries to switch from cash burning to positive cash flow.
Deliveries have stagnated in recent quarters, dipping from 15,500 in third-quarter 2023 to 14,000 in the fourth. This indicates that Rivian has hit a demand ceiling for its premium products, which makes sense given that they sell for a pretty penny and only in select markets in the United States. There are only so many people out there willing to spend $100,000 on a vehicle from a start-up with little brand history.
The problem is that the R2 will not enter production for another two years, and that is assuming none of the production setbacks that have plagued Rivian for years. This puts the company at risk of burning billions of dollars in cash over the next two years before its mass-appeal products enter production. With just over $9 billion in cash on the balance sheet, it isn't out of the question that Rivian could blow through all of this dry powder in the next few years.
I have no doubt that Rivian can grow its deliveries if it can get the R2 to market. But we are a long way away from this happening. Investors need to be tracking whether Rivian can grow its deliveries without major price cuts. Otherwise, the company is going to continue losing tons of money.
RIVN Free Cash Flow data by YCharts
But is the stock a buy?
With heavy cash burn and no signs of an imminent turnaround, Rivian's stock has plummeted since going public in 2021. As of this writing, it trades at a price of $12.24, down 93% from all-time highs to a market cap of $12 billion.
This looks potentially cheap if Rivian can ramp production with its new models. The company is already doing $4.4 billion in sales that could triple or more over the next few years with the growth of the overall EV market. However, investors need to remember that the company is burning a ton of cash right now and struggled over the last few quarters to grow deliveries. It is not in a comfortable position and needs to execute over the next few years to come out intact on the other side.
If you are optimistic about Rivian and want to buy the stock, it is probably best to keep your position small. You don't want to risk your entire portfolio on a company that may go belly-up. But if the company beats the odds and succeeds, a small position size will turn larger rather quickly.
