Is It Finally Time to Buy Rivian Stock?

Rivian Automotive (RIVN 8.11%) has been a punishing investment for its early backers, but that might finally be changing. Those who bought shares at the start of 2025 would have actually gained an impressive return of 32% year to date, even though the company still faces numerous challenges with scaling up its operations.

Over the next few years, management will likely continue emphasizing artificial intelligence (AI), vehicle autonomy, and software to attract the market's attention and potentially regain its once-lofty valuation. Let's dig deeper to see if there is any substance behind the hype.

Is the electric vehicle industry cooked?

It's hard to believe it now, but a half-decade ago, electric vehicles (EVs) were seen as an explosive investment opportunity. These new cars promised to disrupt the ossified, low-margin market for fossil fuel vehicles with the potential for higher per-unit profitability because of their potentially lower manufacturing complexity and ever-improving battery technology.

At the time of its initial public offering (IPO) in late 2021, Rivian had a market cap of over $100 billion, more than legacy automakers like Ford Motor Company and General Motors, despite reporting minimal sales.

Now, Wall Street has snapped back to reality. And it is becoming increasingly clear that EVs could become just as low-margin and boring as the vehicles they seek to replace. Stiff Chinese competition has led to a race to the bottom in international markets.

While the U.S. market is somewhat protected by a wall of tariffs, consumer demand in this country is actually lagging the rest of the world. The problem could get worse because of the rollback of government support under the Trump administration, which has ended tax credits and regulatory credits for EVs.

Is it time to become a tech company?

For Rivian, being seen as just another automaker is an undesirable fate. These stocks often generate lackluster long-term growth and extremely low valuations compared to their revenue. For example, Ford has generated essentially zero return (aside from dividends) since 2015, despite selling one of the most popular vehicles in the U.S., the F-150 pickup. And while General Motors is doing better, its shares have lagged the S&P 500.

Rivian is trying to set itself apart with a focus on technology and services, to encourage investors to buy its stock despite its premium valuation. Management has found some early success, inking a multibillion-dollar deal with Volkswagen for a joint venture to develop vehicle software.

Image source: Getty Images.

The deal gives Rivian a much-needed cash infusion while also suggesting that the company has established an early economic moat in automotive software development, which has been a pain point for many traditional automakers.

There seems to be some real innovation here, with Reuters reporting that the company's software requires fewer electronic control units and wiring, which can make its vehicles lighter and easier to manufacture while potentially boosting margins.

The EV maker's chief software officer, Wassym Bensaid, seems optimistic that this segment could scale up, saying that many other automakers are interested in incorporating its software. In the best-case scenario, this could help diversify Rivian's revenue streams with licensing sales.