Rivian is trying to reach profitability during a challenging time in the EV industry.
Rivian Automotive (RIVN -1.60%) hit an all-time intraday low of just $8.26 per share on April 16, following an 8% slide on April 15. Many electric vehicle (EV) stocks sold off heavily in response to news that Tesla (TSLA 0.21%) was cutting 10% of its workforce. Rivian followed suit later last week with its second job cut of the year, though it was a much smaller 1% reduction.
With sentiment toward EV stocks declining seemingly every day, investors may be wondering what it will take for the industry to bottom, and if Rivian is a buy now that the growth stock is down over 60% year to date.
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The Tesla problem
Like it or not, Tesla is the leading EV company, so its performance has ripple effects throughout the industry. Tesla's growth has slowed due to weakening demand and cost-cutting efforts intended to boost interest in EVs amid heightening competition from other EV makers, as well as hybrid options from Toyota and others.
To make matters worse, there are rumors that Tesla is abandoning its Model 2 lower-priced EV offering in favor of going all-in on its robotaxi idea. We may have to wait to hear from Tesla on its April 23 earnings call to see if this news is true or not, but it would change the investment thesis since a sub-$30,000 EV was supposed to mark the next evolution in Tesla's product offering.
The move seems to indicate that making a lower-priced EV isn't worth it, possibly due to a lack of demand or the cost model just not adding up. Tesla has also halted deliveries on the Cybertruck due to an accelerator pedal problem.
All told, it's not a good look when the top EV maker could take its business in a different direction, maintain its established lineup of vehicles, and not pursue a lower-cost option. It bodes particularly poorly for Rivian, which is trying to branch into the lower-cost vehicle market with its $45,000 R2, with deliveries expected to begin in the first half of 2026.
Plugging holes
Despite all the bad news, Rivian has fairly straightforward objectives. It's focusing on the energy transition through commercial and passenger EV offerings that cater to a spirit of adventure and performance, with the intent to gradually reduce the entry-level price of its vehicles to tap into a wider audience. To get there, it has established a strong brand identity and purpose, and has to scale production, which will help make fixed overhead costs less damaging to its profitability.
The challenge with building an investment thesis for a company like Rivian is that so much is based on what the company could become rather than what it is today. Rivian has received positive (and often perfect) performance and safety reviews for its vehicles. But it can't control the cyclicality of the auto industry, or consumer excitement toward EVs.
Higher interest rates have also come at a terrible time for Rivian, which continues to burn through cash at a breakneck pace. The company is confident that it can fund operations through 2025 with existing resources, but it is still unlikely to be profitable by 2025 or even 2026, meaning it will likely have to rely on capital markets.
With so much uncertainty regarding the timetable for Rivian's profitability, how it will get more cash, and what demand will look like for its existing lineup before the R2 comes out in 2026, it's understandable that some investors are dumping Rivian stock in favor of other opportunities.
When an excellent business experiences a tough time, investors can rely on fundamentals like a strong balance sheet or proven business model. But that's not the case with Rivian. Although Rivian is becoming more established with the success of its products, its capital-intensive business model has so far been too much, too fast, and has left the company in an existential cash crunch.
Grasping at straws
On the surface, Rivian looks like a deep value play -- its market capitalization is $8.6 billion, but its cash and cash equivalent position is $7.9 billion. But the company intends to use that cash within the next two years, with uncertain results to show for it. The situation puts a ton of pressure on the R2, and leaves next to no margin for error.
For many investors, patience has seemingly run out on Rivian stock. Even so, there's no telling how far it could fall from here. Therefore, Rivian is only worth investing in if you believe in the company's innovation, that the R2 will be well received by consumers, and that the company will have a successful capital raise -- whether that's through the debt market or equity market.
Rivian is a good lesson on why an exciting company can sometimes be a terrible stock, and why growth companies must chart clear paths to profitability or risk punishment by the public markets.
Daniel Foelber has the following options: long July 2024 $15 calls on Rivian Automotive. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
