Rivian Automotive (RIVN 1.70%) is at an important crossroads. Down one path lies profitability, growth, and long-term success. Down the other lies obsolescence. Okay, maybe that's a bit too dramatic, but Rivian's big goal for 2024 is to turn a gross profit. That's not the same as generating positive earnings, but it is a vital step along the way. If it can't manage to take that first step, well, the long-term appeal here is limited. But if it can live up to that goal, the future could be very bright.
What does Rivian do?
From a high-level view, Rivian doesn't do anything exciting. It just makes trucks. In the consumer space that means a pickup truck. In the business space, at least for now, it means delivery vans. The important nuance here is that it is making electric trucks. While not completely unique, since other automakers produce electric trucks, too, Rivian has an award-winning product that had been very popular with consumers. Oh, and it has actually achieved a material level of production at its factory, which is expected to make around 57,000 trucks in 2024.
Image source: Getty Images.
The problem is that Rivian is basically still in start-up mode. So it is incurring large losses. That won't change in 2024. In fact, the company spent heavily in the first half of the year to upgrade its production facility and to enhance its truck offerings. The factory upgrade went well, so management is executing on its plan. But the real test will be if Rivian can achieve a modest gross profit in the fourth quarter of the year like management is targeting. It won't be a good thing if that target gets pushed out, but if it takes a couple of additional quarters it won't be the worst thing in the world. Rivian has $7.8 billion of cash and short-term investment on its balance sheet to help it limp along.
Given the ongoing red ink on the bottom line, that money won't last forever. But Rivian recently inked a deal with Volkswagen worth around $5 billion, so there's more cash coming in and that should give Rivian the room it needs to keep developing its electric vehicles.
The Rivian story has an interesting little twist
That Volkswagen deal is more important than it may seem. Yes, it is about Rivian finding additional funding as it spends to build out its business. But the key to the deal is that Rivian is offering Volkswagen access to proprietary technology. From day one, Rivian wanted to own its technology so it could sell it to other carmakers. That's exactly what's happening with Volkswagen.
Not only does this prove out the business concept, but it also means that Rivian is about more than just selling its own branded trucks. If it can turn a gross profit on its trucks, the Volkswagen deal suggests there's a very real path toward a bottom-line profit, too, as Rivian expands its reach in the broader auto sector.
Assuming Rivian can do that, investors will likely flock to the shares. Although Tesla's stock has fallen dramatically from its highs, it has still seen a massive advance from the days when the company was still in upstart mode. That's the logical comparison point here, which suggests that Rivian could, indeed, be a millionaire-maker stock.
Rivian comes with high risk
All of that said, Rivian still has a lot to prove and needs to execute at a high level. If it doesn't, well, it could flame out like so many other electric vehicle makers have. So investors shouldn't go in here without fully understanding the risks. However, so far, Rivian has executed well and appears to be on a solid upward trajectory with its business. So the final call is that Rivian could be a millionaire maker, but only if you have the stomach for a more aggressive investment approach.
