Rivian (RIVN) stock now trades at a fraction of its IPO price, and it still doesn’t look great value. The company is going through a transition and, as such, hasn’t made headlines much in 2024. With the market becoming more competitive and analysts not forecasting the company to break even until 2030, Rivian stock simply isn’t worth the risk for me. I’m shifting my stance from Neutral to Bearish.
Rivian’s Underwhelming Growth
Rivian, like several other names in the EV segment, had great potential. I’ve just rewatched a review of the RT1 truck from the pandemic era. I remember thinking how exciting this vehicle was, from its sleek interior to its additional luggage compartments.
Fast-forward four years, and the company hasn’t delivered on the promised potential. The company’s Q2 results were reflective of this stagnation. In Q2, Rivian produced 9,612 vehicles and delivered 13,790, which was in line with expectations. However, this represents only modest growth compared to Q2 2023, when Rivian produced 13,992 vehicles and delivered 12,640.
Perhaps more concerning is Rivian’s 2024 production guidance of just 57,000 vehicles, which is actually 232 less than in 2023. This also indicates a significant slowdown from Q4 2023, when the company’s production run rate was closer to 70,000 vehicles per year.
The deceleration in growth is raising eyebrows among investors and analysts. However, Rivian’s management says the stagnant production rate reflects downtime needed to retool its manufacturing facility and enact a cost reduction program. As a result, the company anticipates a “30% improvement in production line rate.”
As such, profitability remains a distant goal for Rivian, although the company hopes to make a gross profit in Q4. The consensus of analysts suggests the firm won’t reach the break-even point until 2030, highlighting the long road ahead to financial sustainability.
How Long Can Rivian Survive?
Unsurprisingly, this extended timeline for achieving profitability is particularly worrying given the competitive and capital-intensive nature of the EV market. Moreover, while Rivian had a cash position of $7.87 billion at the end of the quarter, adjusted EBITDA in Q2 was -$860 million. That suggests a cash runway of around nine quarters.
Additionally, some analysts have raised concerns about Rivian’s move to produce cheaper vehicles. The R2 is expected to retail for $45,000, and the R3 is projected to be even cheaper. Lower-priced vehicles tend to have lower margins, and this could put further pressure on the business.
However, a recent deal with Volkswagen (VWAGY) provides some relief. In June 2024, Rivian announced a partnership with the German automaker to license its electric vehicle skateboard platform. The U.S. company has received $1 billion from the partnership, and the remaining $4 billion is subject to the completion of certain milestones and regulatory approvals.
Moreover, the company argues that expanding its product line and partnership with Volkswagen will allow for broader cost reductions. “As we continue to source materials for R2, we are seeing opportunities to further reduce the cost of R1 through additional supplier cost reductions,” CEO and founder RJ Scaringe said in the Q2 earnings call.
Rivian Stock Holds Too Much Risk
While the deal with Volkswagen has injected some optimism, I remain cautious on Rivian. For starters, the EV market, particularly in the lower price segments, has become intensely competitive in recent years.
Established automakers like Volkswagen and General Motors (GM) have introduced affordable EV models, while newer entrants such as BYD (BYDDF) are aggressively expanding their presence. Even tech companies like Xiaomi (XIACF) have entered the fray, further crowding the market, although that’s more problematic in China than North America.
Within this context, Rivian, which has a cash runway of just over two years and is essentially sitting still in terms of deliveries, doesn’t look like a particularly attractive proposition.
What’s more, the company is trading with a forward price-to-sales ratio of 2.47x. That’s more than double its Chinese peers and the likes of GM at 0.78x. This implies that the company is trading at a higher valuation compared to its Chinese peers and companies like GM.
Is Rivian Stock A Buy?
On TipRanks, RIVN comes in as a Moderate Buy based on 11 Buys, nine Holds, and two Sell ratings assigned by analysts in the past three months. The average Rivian stock price target is $17.24, implying a 22.4% upside potential.
The Bottom Line on Rivian Stock
Rivian is surprisingly expensive compared to its peers. And I say surprisingly because the stock has already fallen so much in recent years, and yet it remains so expensive versus its growth prospects. With the company not forecasted to turn a profit until 2030 and with a high burn rate, I find it very hard to get excited by this stock.
