Rivian (RIVN +1.15%) share prices fell after the electric vehicle (EV) maker reported first-quarter 2024 earnings. While sales were roughly in line with Wall Street expectations, the company lost more than analysts had projected it would. And yet, the big-picture story appears to remain intact.
That doesn't mean that investors should be lining up to buy the stock, however.
What is Rivian doing?
Rivian is an EV truck and SUV manufacturer with several high-end consumer products and a delivery truck used by Amazon. Rivian is in talks with others about the use of its delivery trucks as well. Rivian produced 13,980 vehicles in the first quarter of 2024, up nearly 50% from the prior-year period. The company still expects to manufacture around 57,000 vehicles in 2024, which is roughly flat with the total for 2023.
Image source: Getty Images.
That production target is not a sign that Rivian has stalled. Now that the EV maker has ramped up its production to a meaningful level, it is stepping back to streamline its manufacturing abilities. That included a shutdown in the first quarter that was completed as expected. The overhaul of the company's production facility will allow it to produce higher volumes in the future and help to reduce costs. It was basically a necessary growing pain.
All told, Rivian still expects to hit its goal of a modest gross profit in the fourth quarter of 2024. So the company appears to be living up to its promises, although it did change a plan for the production of a new line of vehicles. However, that was likely because of a large financial incentive provided by Illinois to help the company expand at its existing production facility in the state. It's easy to see why it made that change.
The problem with Rivian
From a big-picture standpoint, Rivian is continuing its forward progress. And it has around $7.8 billion in cash and short-term investments to keep funding its operations as it grows. There's no particular reason to be worried about the near term. But the modest fourth-quarter gross profit will be an important milestone.
There are two big reasons for that. For starters, Rivian lost nearly $39,000 on every vehicle it sold in the first quarter. That's an unsustainable figure, which is why the company rejiggered its manufacturing processes in the quarter. That said, it really has to start turning a gross profit on the vehicles it sells as soon as possible or there probably isn't a viable business here.
NASDAQ: RIVN
Key Data Points
The need to turn a gross profit is even higher when you take a closer look at the balance sheet, which is the second big reason that achieving the fourth-quarter gross profit goal will be so pivotal. The company ended 2023 with nearly $9.4 billion in cash and short-term investments. So the $7.8 billion it had at the end of the first quarter represents a 16% drop in a single three-month period. While there's no immediate worry that Rivian will run out of cash, it can't keep burning through money at that pace if it doesn't start producing some profits.
Still, Rivian's story hasn't really changed much in the last three months. What has changed is that the automaker completed its manufacturing overhaul, which was a key step in its efforts to turn a gross profit in the fourth quarter. And that's what investors need to be watching.
Is Rivian worth buying now?
For most investors, particularly those with a more conservative approach, Rivian is not going to be a good stock pick. Although it is continuing to advance toward an important financial goal, it just isn't there yet. Investors that buy it now are making a big bet that the company will not only get to a gross profit but will also achieve black ink on the bottom line at some point.
Its current progress is good, but Rivian hasn't done enough to prove its business model is sustainable just yet. It needs to hit a few more of its key milestones. Only the most aggressive investors should be looking at this carmaker.
