The electric vehicle (EV) market is a crowded one. Investors are presented with a slew of options that hold the potential to generate serious returns as the adoption of EVs continues to grow.
One of those companies that has captured investor attention is Rivian Automotive (RIVN 0.98%). With its sleek lineup of SUVs and trucks catering to outdoor enthusiasts looking to ditch the fuel pumps, Rivian has risen to become a popular EV stock. However, while its cars might be cutting-edge, its stock is another story. Facing considerable challenges and struggling to achieve profitability, investors must carefully evaluate whether Rivian is the best EV stock for their portfolios.
Image source: Getty Images.
Rivian's rocky road
Since its highly anticipated initial public offering (IPO) in 2021, Rivian has encountered significant hurdles on its hopeful path to success. Despite robust demand for EVs and an impressive production ramp-up, Rivian has yet to turn a profit, reporting substantial losses in recent quarters.
While there have been some noteworthy accomplishments for Rivian in the last year, such as new records in production and revenue, it is still struggling to rein in expenses. As a result, the company is bleeding cash. In 2023, Rivian lost a whopping $5.4 billion. Yet, worst of all, expenses keep on rising and currently sit at all-time highs.
Without any income, Rivian has been forced to use its cash reserves to sustain operations. Fortunately its historic IPO (the largest of any American company since Meta Platforms, then called Facebook, in 2014) provided considerable runway and cushioned the blow, but it still doesn't take away from the fact that it has used up over 60% of cash in just two and half years.
So long as profitability remains elusive, reserves will dwindle and put Rivian in a precarious financial situation that raises concerns about its long-term viability. At its current rate of spending, Rivian likely only has another two to three years at best before being forced to find other means of financing to keep operations afloat.
RIVN Net Income (Annual) data by YCharts
Market dynamics will add more challenges for Rivian
It isn't uncommon for young automakers to not turn a profit. It often goes unmentioned, but for most of Tesla's existence it failed to generate income. In fact, its first time turning a full-year profit didn't come until 2020, nearly a decade after its IPO.
Yet, while Rivian optimists might find solace in this comparison to Tesla, there is a harsh reality that they will need to come to terms with. In Tesla's early days, when the EV landscape consisted of just a few companies and the market was growing at an exponential rate, there was a more considerable margin of error. Fast forward to today, and the margin of error has narrowed dramatically as other companies have entered the market and increased competition.
Making matters worse is a changing EV market that is expected to decelerate in 2024. Analysts expect EV sales to grow this year but at a much smaller rate than years past, driven by factors such as high interest rates that have made the cost of owning a car much more expensive along with signs of a shrinking customer base as early adopters of EVs have already purchased new vehicles. EV sales hit a record 46% increase in 2023, but the expectation is that EV sales will only grow by 20% to 30% in 2024.
With the inability to generate any profits, Rivian simply can't afford any dips in the market. Companies with more robust finances and better production capabilities are likely going to be the ones that make it through this challenging time and weather the storm, not the newcomers like Rivian.
NASDAQ: RIVN
Key Data Points
Weighing your options
For investors seeking exposure to the EV sector, established manufacturers with proven track records of profitability and production, such as Tesla and BYD, may present more compelling investment opportunities. These companies have demonstrated their ability to innovate, scale, and generate sustainable profits, making them potentially safer bets in the evolving EV landscape.
While Rivian's ambitious vision and state-of-the-art vehicles might appeal to drivers, for investors it's a different story. The company's current financial challenges and uncertain market outlook make Rivian's stock an incredibly risky one to own.
