It's been a difficult few years for the stock of Rivian Automotive (RIVN +3.13%), which has gone from hitting over $179 soon after it debuted in November 2021 to under $10 today.
Rivian's problems and why the EV stock is down
Rivian has been making progress selling vehicles, as it more than doubled production and deliveries in 2023. However, the electric vehicle (EV) maker has been selling the vehicles at a loss, as demonstrated by its negative $2 billion in gross profit last year.
Rivian's gross profits are the difference between the price at which it sells its vehicles versus its cost to make them. This excludes any marketing, research and development, or corporate costs, and involves mostly the material and labor costs to make the vehicles. Rivian's negative gross margins are a sign that it does not currently have the scale and manufacturing efficiencies to compete with larger automakers.
More recently, overall EV sales have begun to slow. According to Kelley Blue Book, in the U.S. EV sales only rose 2.6% in the first quarter. That compares to a 46.4% increase in Q1 2023.
NASDAQ: RIVN
Key Data Points
Amazon provides some good news for Rivian
While Rivian has certainly been dealing with issues, there has been some good news that has recently come to light for the company. Bloomberg recently reported that Amazon (AMZN +1.96%) has become the largest private operator of EV charging stations in the U.S.
Why is that good news for Rivian? Because the company is a provider of Amazon's electric delivery vans (EDVs). Amazon is looking to get to net zero emissions by 2040, and Rivian's EDVs are one of its keys to reaching that goal.
Amazon has ordered 100,000 vans from Rivian in 2019 with plans to have them on the road by 2030. However, thus far, only about 13,500 have been delivered. One of the big reasons for this is because the e-commerce giant didn't have the charging infrastructure in place.
However, the company now has 17,000 chargers at 120 warehouses throughout the U.S. This will pave the way for a lot more EDV deliveries to Amazon in the coming years.
Notably, Amazon is also a large shareholder of Rivian, owning nearly 17% of the company. So it has an interest in making sure Rivian is successful.
Just as importantly, Amazon has also laid out the road map for other companies looking to change over their fleets to EVs. The Amazon-Rivian EDV deal was initially exclusive, but that exclusivity has ended. AT&T will be the first company besides Amazon to run a test pilot program with Rivian this year, adding the EV maker's vans to its fleet.
More good news
While overall EV sales slowed dramatically in Q1, Rivian sales were quite robust, increasing about 59%. The company produced 13,980 vehicles, while delivering 13,588. That growth far outpaced overall EV growth in the U.S.
Meanwhile, the Rivian R1S was the fourth-best-selling electric vehicle in Q1, only behind two Tesla models and the Ford Mustang Mach-E. Rivian just introduced a more affordable electric EV, the R2, last month. It starts at $45,000, and the company is looking for it to be a more mainstream vehicle. The new vehicle received over 68,000 reservations within the first 24 hours after it was introduced.
Image source: Getty Images.
Turnaround play
With negative gross margins, Rivian still has a lot of work cut out for it to prove it's a viable business. On that front, the company did announce that it would shut down both its consumer and commercial lines for several weeks to implement cost-saving technologies at its plant that will include new design and engineering changes to its R1 platform. It will also increase its line rate by about 30% to improve vehicle production efficiency.
As production grows and the company becomes more efficient, it should have a path toward positive gross margins and later profitability. While it may not be easy, having the backing of Amazon helps a lot.
Rivian is undeniably speculative, but for investors looking for a high risk-reward investment, the stock has potential and is finally seeing some good news for a change.
