Rivian (RIVN -2.15%) stock is priced at a bargain versus other electric car stocks like Tesla and Lucid Group. Shares trade at just 3 times sales versus nearly 7 times sales for Lucid and just over 12 times sales for Tesla. A lot of this discount is due to investor concerns over lackluster sales growth in recent quarters.
But looking ahead, Rivian's sales have the potential to explode.
Image source: Rivian.
Rivian is about to achieve its long-term dream
There are two things every EV manufacturer hopes to achieve long-term. The first is to reach positive gross margins. This means that the firm is making money on every car it sells when compared to the cost involved in manufacturing the vehicle. The second milestone is to release a "mass market" vehicle. That is, a vehicle considered affordable by the broader car-buying market, typically priced under $50,000.
Rivian has already achieved the first milestone. Over the past two quarters, it has managed positive gross margins for the first time in company history. Looking ahead, it could achieve the second milestone by early next year. That's when management aims to start production of three new mass-market vehicles.
The significance of these launches cannot be understated. Today, more than 90% of Tesla's vehicle sales come from its two affordable models: the Model Y and Model 3. When Rivian's new models start shipping to customers, expect two things. First, sales growth will likely surge, just as Tesla's did when it released its mass market vehicles. Second, gross margins will improve even further thanks to greater operating scale.
The result -- surging sales growth with improved profitability -- should be a game changer for Rivian stock, which is currently priced at a discount to its peers. It may take a couple of years for this sales growth and profitability improvement to fully take hold, but once it does, expect Rivian shares to respond very positively given the current discounted valuation.
