Could Rivian Potentially Turn Investors into Millionaires?
Rivian Automotive (RIVN shedding -2.78%) has seen a significant value loss in a short span, with shares plummeting by a harsh 92% since its market debut towards the end of 2021. Despite this steep decline, the company continues to entice patient investors with the prospect of investing in the burgeoning electric vehicle (EV) sector at its inception. Let's examine Rivian's strengths and weaknesses to determine if this troubled automaker still possesses millionaire-maker potential.
What happened to Rivian's investment case?
The EV industry has undergone a radical transformation since Rivian's entry three years ago. Back then, the market was skyrocketing – led by the dominant player Tesla, which had proven that standalone EV manufacturers could attain profitability at scale. Established automakers such as Ford, General Motors, and Stellantis seemed to be lagging behind, providing Rivian an opening to potentially exploit Tesla's model lineup gaps through its emphasis on pickup trucks and large SUVs.
However, the investment rationale that likely warranted Rivian's record-breaking $153 billion valuation (the company currently sits at around $10 billion) has mostly dissipated. Growth for pure-play EV companies has slowed, and traditional automakers are flooding the market with various alternatives – particularly in Rivian's core SUV and truck segment.
Most concerningly, the growth narrative now appears to favor legacy automakers, potentially due to their stronger brands and dealer networks that enable them to reach a wider customer base.
This shift becomes apparent when examining third-quarter sales. For instance, Ford's electric F-150 pickup truck sales doubled year-over-year to 7,162 units. Furthermore, GM is seeing substantial success with numerous offerings, including the Cadillac Lyriq, a luxury SUV that saw sales surge 139% to over 7,000 units. Both vehicles compete directly with Rivian's lineup of premium trucks and SUVs.
What is Rivian's turnaround strategy?
Rivian's second-quarter financials underscore the extent of its challenges. Revenue grew a modest 3% year-over-year to $1.12 billion, but operating losses widened by 7% to $1.38 billion. The company's third-quarter earnings (due Nov. 7) are likely to showcase similar indicators. Vehicle deliveries have decreased 36% year-over-year to 10,018 vehicles (in contrast to analyst projections of 13,000).
That being said, Rivian isn't planning to cede defeat without a fight. CEO R.J. Scaringe aims to achieve a humble gross profit by the end of 2024 through lowering material costs and enhancing factory efficiency. If successful, this move could pave the way for Rivian to transition into sustainable operating profitability over the long term.
Rivian also intends to accelerate growth with a new SUV dubbed the R2, which utilizes a new mid-sized vehicle platform. Set to debut at a modest $45,000, it will significantly undercut Rivian's current flagship SUV, the R1S, which starts at $77,000. Although less expensive vehicles may not boost Rivian's margins significantly, they could aid in the company's transition towards a more volume-driven business model.
Is Rivian a millionaire-maker stock?
Unfortunately for investors, Rivian is currently in survival mode. Over the next several years, management's primary focus will likely be preserving the company's existence – rather than distributing rich dividends to shareholders.
With $7.87 billion in cash and short-term investments in its coffers, Rivian can sustain its existing cash burn for several more quarters. However, it may eventually have to turn to outside sources of capital, such as equity dilution, which can diminish current investors' stakes in future earnings. Investors should likely pause their Rivian stock purchases until the company offers a compelling roadmap to profitability.
In the context of Rivian's financial struggles and the shifting landscape of the EV industry, some investors might question the wisdom of allocating their finance resources to this troubled automaker. Despite Rivian's efforts to reduce costs and introduce more affordable models, the success of established players like Ford and GM in the electric vehicle market could potentially dilute Rivian's investment appeal, making it a less attractive option for those seeking significant returns on their investing in money.
Considering Rivian's financial challenges, it may be prudent for investors to adopt a cautious approach when considering the potential for millionaire-maker gains from investing in the company. With the company's focus on preserving its existence, rather than distributing profits, prospective investors may wish to wait for a more compelling roadmap to profitability before investing their money in Rivian.
