Rivian (NASDAQ:RIVN) remains a speculative investment, given its high cash burn rate, which could lead the firm to run out of cash, and the increasingly competitive nature of the electric vehicle (EV) segment. I’m glad to see it taking a leaf out of Tesla’s (NASDAQ:TSLA) books and focusing on achieving operational efficiencies, but there are too many risks for me to get behind it. Thus, I’m neutral on Rivian stock.
Rivian’s Q1 Was a Mixed Bag
Rivian reported earnings per share of -$1.24 during the first quarter, missing the consensus estimate by $0.09, on the back of a net loss of $1.45 billion. Gross profit was only marginally better than in 2023 at negative $527 million versus negative $535 million a year ago.
Nonetheless, there were some positive developments for investors to digest. Revenue came in at $1.20 billion, up 82.15% year-over-year, exceeding expectations by $34.96 million. This was achieved with the production of 13,980 vehicles and the delivery of 13,588, marking 49% and 71% increases, respectively.
There were some other small wins. The company marked the production of its 100,000th vehicle at its facility in Normal, Illinois, during the quarter. But perhaps more promisingly, Rivian’s R1S was the best-selling EV in the U.S. above $70,000, underscoring strong demand in the premium segment.
Other highlights included the unveiling of its new midsize platform underpinning the R2, R3, and R3X models, with R2 production slated to start in H1 2026 in Normal. Rivian had initially planned to launch R2 production in Georgia but claims the move to produce in Normal will save over $2.25 billion. The company also announced the securing of an $827 million incentive package from Illinois to expand its plant and improve infrastructure.
Rivian Has a Lot of Cash, For Now
Rivian ended Q1 2024 with $7.86 billion in cash, cash equivalents, and short-term investments. This equates to around 75% of the company’s market cap, or $8.12 per share. Including its asset-based revolving credit facility, total liquidity stood at $9.053 billion. This might sound like a lot, but at the current burn rate, some analysts think the company could run out of money.
If the burn rate of $1.45 billion a quarter is sustained, Rivian will run out of money within six quarters. Of course, if quarterly losses become more manageable, the company’s cash position will last longer. The Q1 figures demonstrated some year-over-year improvements, and Rivian is undertaking a Tesla-esque cost-cutting drive. In April, Rivian cut 1% of its workforce as part of a larger project to cut staff numbers.
However, it’s worth noting that Rivian’s production guidance for 2024 is just 57,000 vehicles. This is 232 less than 2023 production and represents a significant slowdown from Q4 of 2023, when the run rate was closer to 70,000 vehicles per annum. Moreover, some analysts are concerned about the company’s margins moving forward, with the introduction of lower-priced electric-vehicle models. Cheaper vehicles tend to have lower margins. The R2 is expected to retail for $45,000, and the R3 will be even cheaper.
Likewise, it’s worth noting that demand for new EVs isn’t overly strong at the moment. In the first quarter of 2024, EVs accounted for 7.3% of total new vehicle sales in the United States, which is a decrease from the 8.1% share observed in the fourth quarter of 2023. While this represents an increase compared to previous years, the growth rate has notably slowed, indicating a potential saturation point in certain market segments.
Does Rivian Stock Present Good Value?
Rivian isn’t expected to deliver positive EPS within the forecasting range – that’s the years until 2027. As such, we can’t compare projected earnings multiples with Tesla. On a forward price-to-sales basis, we can see that Rivian is unsurprisingly trading at a discount to Tesla (2.15x vs 5.9x).
However, it’s considerably more expensive than its Chinese peers like Li Auto (NASDAQ:LI) at 0.9x sales despite Chinese EV adoption being much stronger than U.S. EV adoption and Li being profit-making.
On a forward EV-to-sales ratio, Rivian trades at 1.55x, reflecting its current strong cash position. As before, Rivian is cheaper than Tesla but more expensive than Li Auto on this metric.
These valuation metrics are by no means enough to establish a ‘buy’ or ‘sell’ thesis, given the valuation gap across the market. But generally, I’m not convinced by Rivian’s valuation metrics because of the company’s uncertain path to profitability and concerns that cash reserves may run dry.
Is Rivian Stock a Buy According to Analysts?
On TipRanks, RIVN comes in as a Moderate Buy based on nine Buys, eight Holds, and two Sell ratings assigned by analysts in the past three months. The average Rivian stock price target is $13.56, implying 23.2% upside potential.
The Bottom Line on Rivian Stock
Rivian can point to several positives from its Q1 report, with the R1S being the best-selling in its class. However, from an investment perspective, there are plenty of question marks surrounding the stock and how it will move from its current cash-hemorrhaging position to a profit-making position. That’s why I’m remaining neutral on the stock.
